In Freight News 29/07/2015
Asian oil buyers, already sucking in barrels from as far away as Alaska and Mexico, are anticipating more bargains when Iran finally returns to world markets.
In a region that’ll account for more than half the growth in global oil demand this year, refiners are poised to be the winners as the Persian Gulf state raises overseas sales when Western sanctions are lifted. Iran’s oil minister has said he will woo Asian customers and seize market share.
Processors including Hindustan Petroleum Corp. in India and Taiwan’s Formosa Petrochemical Corp. have signaled they may buy more from Iran. Cheap oil has been a boon for many Asian nations, helping to cut budget deficits by reducing fuel subsidies and boosting emergency crude stockpiles.
Iran’s deal “could trigger another price war with Saudi Arabia, Iraq and the U.A.E.,” said Gordon Kwan, the Hong Kong-based head of regional oil and gas research at Nomura Holdings Inc. “This is positive for Asian buyers like China, now blessed with more pricing negotiation leverage.”
Brent crude has fallen more than 50 percent since June 2014 as a global glut of oil triggered international competition, led by OPEC’s increase in production to the highest level in almost three years. The benchmark grade lost 73 cents to $52.74 a barrel on the London-based ICE Futures Europe exchange at 11:20 a.m. London time on Tuesday.
Iran Deal
Six world powers and Iran reached an agreement in July that’ll be implemented if the Islamic Republic meets obligations to curb its nuclear program. Once inspectors verify compliance, it will be allowed to ramp up energy exports with the gradual lifting of sanctions.
Formosa Petrochemical wants to restore supply from Iran to the full volume under its contract and will hold talks “soon” with the Persian Gulf state, spokesman Lin Keh-Yen said from Taipei on July 15, without giving details. JX Nippon Oil & Energy Corp., Japan’s biggest refiner, sees the lifting of sanctions leading to stable supply and a wider choice of crude, the company said in a statement.
“Iran coming into the market will mean a further slide in oil prices and countries like India will be a major beneficiary,” Indian Oil Minister Dharmendra Pradhan said July 15.
Iranian Output
Iran was the second-biggest producer in the Organization of Petroleum Exporting Countries before its disputed nuclear program prompted the European Union to ban purchases of its crude in July 2012. Countries including China, India and Japan had to get a waiver from the U.S. to buy limited amounts of Iranian oil or risk losing access to parts of the global financial system.
The Persian Gulf state is now the fourth-largest OPEC member, with output in June averaging 2.85 million barrels a day, from 3.6 million at the end of 2011.
The measures forced buyers such as South Korea to reduce Iran oil imports from 2011 levels by almost half. To help replace supplies, the North Asian country bought oil from Mexico for the first time in two decades and purchased a cargo of Alaskan crude.
“We will aggressively assess economic aspects to decide how much to import from Iran in the future,” Chang Woo Seock, head of the corporate planning office at SK Energy Co., a unit of SK Innovation Co., South Korea’s biggest refiner, said on July 23.
Potential Shipments
While Iran has signaled it wants to boost shipments by as much as 500,000 barrels a day immediately after sanctions are removed, Goldman Sachs Group Inc. predicts it will be limited initially to drawing down oil in floating storage. Iran may be holding 53.7 million barrels of oil in ships at sea, according to Windward, a Tel Aviv-based vessel-tracker.
The nation’s main market is Asia, which will be its priority, Iran Oil Minister Bijan Namdar Zanganeh said in May. Oil demand in the region will increase by 770,000 barrels a day in 2015 from a year earlier, accounting for more than half of the growth in global consumption, according to the Paris-based International Energy Agency.
“The Iran deal is good for the government, refiners and other customers as this will lead to competition among producers,” B. Ashok, chairman of Indian Oil Corp., the country’s biggest refiner, said July 15.
Countries may take advantage of lower prices brought on by an influx of Iranian crude to boost strategic reserves, Victor Shum, vice president at IHS Inc., an Englewood, Colorado-based industry consultant, said by phone from Singapore.
“Big consumers like China and India in particular are likely to benefit,” Shum said. “Competition will intensify.”
