Iran pushes to retain Asia oil buyers
Iran is pushing to retain customers for its oil in Asia, hoping that price reductions will boost the appeal for its crude compared with other Middle Eastern supply even as the potential threat of further US sanctions on the country looms.
National Iranian Oil Company has in the last few weeks offered spot cargoes, ranging from light to heavy grades, to its term buyers in Asia, after setting December prices at the lowest in years against comparable Saudi grades, three sources with knowledge of the matter said, reported Reuters.
The sources declined to be identified as they were not authorized to speak with media, while NIOC was not immediately available for comment.
That comes as US Congress has until mid-december to decide whether to reimpose sanctions on Iran that were lifted in exchange for modification on its nuclear program, with President Donald Trump disavowing Tehran’s compliance with the terms of that deal.
“The threat of US Congress sanctions has put pressure on Iran to ‘firm up’ markets via discounts and freight adjustments for its crude,” said Tilak Doshi, a consultant at Muse, Stancil and Co. in Singapore.
NIOC first cut the official selling price (OSP) of Iran Heavy crude against Saudi’s Arab Medium grade for October, before lowering it again for December. That puts the Iran Heavy price for December at the widest discount against Arab Medium in over a decade, data on Thomson Reuters Eikon showed.
Meanwhile, price cuts for Iranian Light placed the oil at its lowest premium in two years against Saudi Arabia’s Arab Light.
The discounts were made to retain existing buyers of Iranian oil, which already have government-backed arrangements in place from when the original Western sanctions hit Iran’s oil exports in 2012-14, the sources said.
Japanese and Indian buyers responded to the price cuts for October by increasing imports and are expected to keep volumes elevated due to competitive prices, trade sources said.
Iran’s offers for December come weeks before the Organization of the Petroleum Exporting Countries (OPEC) and NON-OPEC producers meet on November 30 to decide whether to extend a deal to cut production and support prices.
They also follow rising Basra crude exports from Iraq and an increase in Qatari supplies in January that have been putting Iranian grades under pressure, said Ehsan Ul-haq, director of crude oil and refined products at consultancy Resource Economist.
Still, traders and analysts do not expect a repeat of the battle for market share that was waged prior to OPEC’S 2016 supply cut deal, with Tehran set to maintain steady output of about 3.8 million barrels per day and exports of 2.4 mbd-2.6 mbd.
“They have maxed out their (export) volume unless they can increase production further,” said a trader who handles Iranian oil.
Meanwhile, Barclays on Monday said that while it expects a six- or nine-month extension of an OPEC-LED deal to curb oil output during a meeting on Novenber 30, the level of production cuts would be more significant than the duration.
The bank forecast Brent to remain above $60 per barrel in the fourth quarter of 2017, and fall to $55 in 2018. It stood at around $63.80 on Monday.
“Whether or not the countries extend and the duration of the deal are not the relevant questions in our view. We believe the level of the cut is what really matters, and we assign a low likelihood to this detail being announced on November 30,” analysts at the bank said in a note.
Brent crude oil futures have been stronger than WTI due to an effort by OPEC and a group of other producers, including Russia, to withhold 1.8 mbd of output since January.
“If the meeting concludes as the market expects, prices could experience a short-term selloff, but the technicals and fundamentals will likely remain constructive,” the bank said.
The deal to cut output expires in March 2018, but OPEC will meet on November 30 to discuss its policy.
“The sustainability of the deal depends on how much longer Saudi Arabia, Russia, Iran and Kuwait are willing to sacrifice market share in the pursuit of revenue and market stability,” analysts at the bank said in a note.
A purge this month of Saudi Arabia’s leadership by Crown Prince Mohammed bin Salman is one of the key factors raising concerns about political stability of the region’s largest oil producer.
Assuming that current levels of production are sustained, the global oil market would flip into a slight deficit from a slight surplus, Barclays said.
Reduction of output from OPEC and NON-OPEC participants of the deal by a further 550,000 barrels per day could lower inventories by 153 million barrels during the Q2-Q4, 2018 period, it added.
“But in the $60-70 per barrel range, US tight oil, Chinese import levels, and global oil demand growth will not stand still and would likely cause a hangover for the oil market.”