Zanganeh: $40 Oil in 2016-17 Budget Logical

Zanganeh: $40 Oil in 2016-17 Budget Logical Zanganeh: $40 Oil in 2016-17 Budget Logical

The proposed base oil price for the budget in the next Iranian fiscal year (starting March 20, 2016) will be closest to that of the global market, Oil Minister Bijan Namdar Zanganeh said late Tuesday on the sidelines of the Fourth Oil and Media Festival in Tehran.

Zanganeh dismissed speculations that the oil price agreed in the budget will be $35 per barrel, Shana reported.

"We should let the market decide," Zanganeh said, adding that giving wrong signals to the market, that is setting a low base price for oil in the annual budget, will not be beneficial, hence the final proposal should be closest to that of the market price.

President Hassan Rouhani said on Dec. 7 that he expected oil prices at five-year lows to place “short-term pressure” on state revenue.

Earlier this month, Iran's First Vice President Es'haq Jahangiri said Tehran "never expected oil prices to fall below $60" and plunge to as low as $30 a barrel, a major dent in national revenues that will irrevocably hurt domestic economy.

Iraq, the second-biggest member of OPEC, is using $60 in its budget. Saudi Arabia, the top producer, is assuming $80, according to John Sfakianak, the group general manager and chief economist of Banque Saudi Fransi. Kuwait aims to base the 2015-16 budget on $45 oil.

Russian President Vladimir Putin also warned that his country should be prepared for enduring financial challenges presented by a long period of low oil prices, with a 2016 budget based on $50 oil.

Prices of Brent, a benchmark for more than half the world’s oil, have dropped about 50% in the past year, forcing governments to reduce subsidies on diesel, natural gas and utilities to cut billions from capital budgets.

Asked about OPEC's extraordinary meeting, Zanganeh noted that the members have not reached a general consensus, so whatever decision is made will deteriorate the situation.

The official believes ministers who attend the Organization of Petroleum Exporting Countries' meeting are not the actual decision-makers, as oil prices have already been set by their administrations and they just reflect their officials' views indirectly.

  No Change in Gas Price

Underscoring the fact that gasoline price will not change till the end of the current Iranian year, he said, "Pricing gasoline is not under the authority of the Oil Ministry.  Government handles such critical issues and as far as I know, no decision has been made in this regard. More importantly, no plans have been made to free gasoline prices this year."

The oil minister noted that plans are underway to organize gas stations nationwide into three types, only one of which would offer gasoline at the official rate of 10,000 rials (approx. 32 cents) per liter.

According to Zanganeh, the new arrangement is part of efforts to sell gasoline under brand names, which would be a first in the Persian Gulf country.

Referring to the large number of gas stations in Iran, currently standing at 4,000, he said controlling all the stations is an arduous task, which explains why specific companies should be tasked with monitoring them.

Furthermore, the proposed plan will help check the stations regarding the health, safety and environment concerns. Needless to say, they can give better services to their customers without imposing extra financial burdens on their shoulder.

“The Oil Ministry is not against gasoline supply by the private sector, but it should be done under a brand name” even if a gas station is owned by a private investor, the minister said.

Earlier this year, French oil and gas major Total and the Royal Dutch Shell showed the green light to establish 200 gas stations across Iran, but officials quickly dismissed such an arrangement with any domestic or international contractor.