Can Oil Survive Iran After All?

The US and Iran are edging closer to a new nuclear deal that would lift sanctions and permit Iran’s oil back into global markets, yet prices are not falling in anticipation. Perhaps a deal cannot really be done. Or perhaps markets are focusing on reports that Iran and Saudi are negotiating to settle their rivalry, which would open the door to Saudi restraining production to accommodate new Iranian supply, which would take more than a year to materialize. OPEC+ is demonstrating strong production discipline. US shale producers have already brought all shut-in wells online, and are now running off drilled uncompleted wells. New drilling has barely begun, and we anticipate US production won’t be back to pre-pandemic levels until the end of 2022. We expect a boom year for the global economy, with crude demand coming back to pre-pandemic levels. This is an environment that could tolerate Iran’s return, so we maintain our only slightly pessimistic price target of a range from $50 to $60.