Baku, Azerbaijan, April 26
By Leman Zeynalova – Trend:
China, India and Turkey are unlikely to end the oil imports from May when the sanctions waivers will expire in accordance with the US decision, Trend reports citing Fitch Solutions Macro Research (a unit of Fitch Group).
“US foreign policy will reduce oil exports coming out of Iran after waivers expire May 2nd. According to the US State Department no sanctions waivers will be extended, which should curtail the exports in the coming months. This will remove more Iranian supply from the global market. However, the amount of barrels removed is unclear at this point as there may be scope for imports via barter or non-compliance from the main importers China and India. Saudi Arabia has the flexibility to bring on more supply to counter lost supply from Iran, but so far have taken a cautious stance on raising production substantially.
Venezuelan crude exports are set to decline further as the grace period for exports expires in May adding further upside pressure,” reads a report from Fitch Solutions.
The company estimates that early market reaction had boosted prices by 2.8 percent above the previous close following the Trump administration announcement.
“However prices have remained broadly flat in the days after the initial news. The production response from Saudi Arabia will be telling in terms the supply and demand balance, though recent prices gains would indicate market participants view the market as remaining broadly balanced but tightening. Given the concerns around supply tightening from Libya, Venezuela, and Iran, the short-term view on Brent is bullish,” said the report.
Fitch Solutions believes that crude producers that can supply similar crude quality to Iran’s will benefit.
“Existing US production streams broadly align with the light sweet crude exported from Iran, but the volumes will not be able to completely make up for all Iranian exports. The UAE and Saudi Arabia are well positioned to make up for the shortfall quickly, but dependent on the scale of the ramp up required, this may erode support for the OPEC+ extension due in June. If the OPEC+ agreement fails to be extended refiners and consumers may benefit as oil prices would be expected to fall as result of the return to unconstrained production which has removed over 1.2mn b/d of crude from the market,” the report reads.
“The actual extent of US policy on Iran exports is still unclear. The reduction of exports to zero seems unlikely, though the actual reduction of Iranian export volumes is difficult to determine at this point. Compliance with sanctions will be a key aspect to monitor in the coming months. China, South Korea and India are the largest importers according to March 2019 data. We expect the possibility of looser compliance from China, India and Turkey albeit with Europe, Japan and South Korea halting Iranian imports altogether. That said, dual exposure to Venezuela for China and India will heighten the risk of fallout from US authorities should these markets choose to defy the US and continue to import from both Venezuela and Iran, albeit enjoying a significant price discount.”
The US State Department has said that the country won’t issue additional reduction exceptions to existing importers of Iranian oil.
"United States will not issue any additional Significant Reduction Exceptions to existing importers of Iranian oil. The Trump Administration has taken Iran’s oil exports to historic lows, and we are dramatically accelerating our pressure campaign in a calibrated way that meets our national security objectives while maintaining well supplied global oil markets. We stand by our allies and partners as they transition away from Iranian crude to other alternatives. We have had extensive and productive discussions with Saudi Arabia, the United Arab Emirates, and other major producers to ease this transition and ensure sufficient supply. This, in addition to increasing U.S. production, underscores our confidence that energy markets will remain well supplied," reads the message.
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