Moody's: Iran Faces Hurdles in Boosting Oil Production

Moody's: Iran Faces Hurdles in Boosting Oil ProductionMoody's: Iran Faces Hurdles in Boosting Oil Production

New York-based bond rating firm Moody's Investors Service on Monday released a new report suggesting Iran's return to global oil markets could be stymied by production hurdles.

The lifting of sanctions against Iran sees that country increasing production and sending that crude into the global oil market, but Moody's says the country faces technical hurdles in terms of ramping up production after 2016, not least of which being that the new flow arrives at a time global crude markets are oversaturated, Ship and Bunker reported.

Earlier this month, Russia and Saudi Arabia agreed to freeze their oil output  to stabilize prices, but that deal does not yet include Iran.

As such, Moody's forecasts that Iran's addition of its long promised 500,000 barrels per day to the global oil market in 2016 will put further downward pressure on prices.

However, Iran's aging oil infrastructure, which Moody's say requires capital investments in the range of $150-200 billion to modernize, will prevent the country from increasing production much beyond that.

"Many integrated oil companies are simply unable to invest right now because low oil prices have weakened their earnings and pushed their cash flow deeper in the red," said Waheed Sheikh, a Moody's associate analyst.

"Integrated oil companies will need to cut capital spending through at least 2016."