Where will Iran concentrate its crude sales with sanctions?

Baku, Azerbaijan, Nov.8

By Leman Zeynalova - Trend:

It will be difficult for Iran to maximize exports when virtually all trade in oil is cleared in U.S. dollars, putting international oil companies, many national oil companies, traders and banks off limits, UK-based Wood Mackenzie said in its report.

“Beyond November 5, we expect crude exports to fall to 1 million barrels per day, though it could vary month to month; and condensate to 100,000 barrels per day. Crude sales will be concentrated around a core of supportive state buyers, China, India and Turkey,” said the report.

Wood Mackenzie estimates that since the US withdrew from the nuclear deal in May 2018, Iranian crude and condensate exports fell to around 1.8 million in September.

“We’ve seen Iranian crudes discounted by U.S.$1 per barrel compared with similar Middle East grades, the biggest for a decade. Iran is hoping the EU’s barter proposal – goods as indirect payment for oil – opens doors, though we doubt any big oil traders will leap at the opportunity. Access to shipping insurance is also a problem, though Iran has its own fleet of 60 tankers and has offered cargoes CIF (cost, insurance and freight) to buyers. Specialized tanker trackers suggest Iranian tankers are operating ghost with disabled ID systems to avoid detection,” said the report.

The company believes that the biggest risk for the oil market is this winter.

“Losing another 1 million barrels per day or more from Iran comes on top of a similar loss in supply from Venezuela over the last couple of years. Saudi Arabia, UAE and Kuwait have stepped up production since July to minimise the increase in price as the market tightens,” Wood Mackenzie believes.

The report said that there’s just enough growth in supply from elsewhere to muddle through the next few months, meet winter demand and avert a price spike.

Moreover, the company warns that OPEC spare capacity was an ample 4 million to 5 million barrels per day two years ago and there’s only 700,000 barrels per day of additional available within 30 days right now.

“That means the market is vulnerable to strong demand in a cold winter or any new supply outage,” said the report.

Wood Mackenzie forecasts that Brent will ease and average $74 per barrel in 2019.

“We expect supply to grow 1.6 million barrels per day in 2019, with US tight oil driving this. That’s well ahead of 1.2 million barrels per day of demand growth and should lead to a healthy inventory build during the year. But with Iran in the full grip of sanctions and Venezuela continuing to decline, that limited OPEC spare capacity will cast a shadow over the market for some time.”

The US government's sanctions against Iran came into effect on Nov.5. The sanctions are designed to target Iranian oil exports and the country's financial sector and are aimed at dissuading third countries from doing business with Iran.

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Follow the author on Twitter: @Lyaman_Zeyn

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