Will Iran

I. What Is The Impact Of A Production Cut On Oil Prices?

It is not in Iran

1. The amount of the cut. A complete halt or a cut that exceeds 1.5mn b/d would increase oil prices significantly. A small cut would have a limited and temporary impact, especially if OECD countries released oil from their SPRs.

2. The volume of oil in floating storage and other storage facilities, including facilities that some OPEC members own in the Caribbean. There could be up to 9mn barrels in storage that companies could dispense within a few days, softening the blow of a sudden decline in Iranian output.

3. The promptness of the US government and the IEA in announcing withdrawals from the SPR. Regardless of the debate regarding the effectiveness of the SPR, once traders believe the government will release oil from it in large quantities, this will force a cap on oil prices, even if no oil is released. Two reasons prevented WTI prices from exceeding their record of about $70/B last summer after Hurricane Katrina: a relatively more competitive world oil market that allowed speedy shipments to the US, and traders