Iran to face bumpy re-entry into global oil tanker market

Int’l banking sector seen cautious on financing

LONDON, Nov 11, (RTRS): Even after Western sanctions are lifted, Iran’s oil tanker fleet is expected to face more hurdles before many of the vessels can start trading again due to insurance hiccups and tougher requirements over sea worthiness by potential foreign clients.

Iran’s main tanker operator NITC remains blacklisted by the United States and European Union since 2012, meaning it’s unable to secure foreign insurance or international classification services, which certify ships have met safety and environmental standards necessary to get access to most ports.

Iranian media has quoted NITC officials as saying the group was readying its return to international markets and was in talks with Western insurers while also looking to expand its fleet. NITC officials could not be reached for comment.

“It is fair to say that commercially they will probably be more difficult to fix than a ship of ... an independent owner or certainly a non-Iranian owner,” said Hugo de Stoop, chief financial officer with leading Belgium-based tanker owner Euronav. “It will take some time.”

Since a July nuclear deal with world powers, Iran has repeatedly announced plans to boost oil production and exports once sanctions are lifted to reclaim its position as the Organization of the Petroleum Exporting Countries’ secondlargest producer.

The United States last month approved conditional sanctions waivers, although it cautioned these would not take effect until Tehran had curbed its nuclear programme.

Leading tanker broker EA Gibson said a number of NITC’s tankers would need “to meet international standards in terms of class and insurance”.

“Furthermore, many units are likely to require dry docking (repairs). On this basis, the process of ‘re-entry’ will be gradual,” Gibson said in a report.

According to Reuters shipping data, tankers carrying nearly 20 million barrels of Iraqi oil are due to sail to the United States in November, almost 40 percent above the amount booked to arrive in October. At an average rate of more than 660,000 barrels per day (bpd), it would be the largest monthly import since mid-2012, according to US data.

The supply surge is emerging at a time when low oil prices are muscling US shale producers out of the market, heightening competition among some OPEC members to secure market share.

In Europe, Saudi Arabia is targeting traditional buyers of Atlantic Basin and Russian crudes. In the United States, where Saudi Arabia has long been the biggest OPEC supplier, favourable prices are helping Iraq regain share among US refiners that run heavier, high sulphur or sour grades.

“There’s been a pull from the Gulf Coast for heavier and medium sour barrels and Basra Heavy been a part of that picture,” Energy Aspects analyst Richard Mallinson said.

“If the pricing has got good when refiners are looking to (switch), then it comes on to the shopping list.”

The Organization of Petroleum Exporting Countries is all but certain to stick to its policy of pumping oil at record rates to retain market share, as the price of a barrel of oil struggles to break above $50 a barrel.

Traders may have also spied a window of opportunity to move Iraqi crude to the United States, as the spread between US benchmark crude WTI and its Middle East equivalent Dubai one-month swaps have fallen to a discount of around 30 cents, from a premium of $4 a barrel just a few weeks ago.

Total US shale production is set to decline 118,000 barrels per day (bpd) in December, the biggest monthly decline on record, to 4.95 million bpd, the least since Sept 2014, according to data from the Energy Information Agency.

Iraq cut its official selling price of Basra Heavy to the United States to a discount of $5.85 a barrel versus the US sour crude benchmark for November, the lowest since it began selling the grade earlier this year, while cutting Basra Light by 50 cents for October.

Mars Sour crude is commanding a discount of around $3.00 to $2.00 a barrel to WTI futures.

Export “We have definitely seen a pickup ... in October in PADD 3, which is the Gulf Coast in (imports of) medium and heavy grades. It’s not just Basra Heavy, we saw Maya and we saw Kuwait export blend,” Mallinson said.

It is not just non-OPEC barrels that Iraq must compete with. Saudi Arabia, along with some other OPEC members, have delivered cuts to their official selling prices to buyers in Europe and the United States in their quest to for market share, particularly as consumption in Asian hot spots such as China appears to be moderating.