Renewed US sanctions on Iran: The emerging scenario

Less than one month to November 5 date for the commencement of the renewed US sanctions on Iranian oil exports, traders say the impact are hitting much harder than most people predicted.

“Iranian export losses have already accelerated faster than we expected,” said Paul Sheldon, S&P Global Platts Analytics’ chief geopolitical adviser with some projections going as high as 2 million barrels per day to be lost to the global market.

Oil prices continued to be supported by the deadline and the hardline enforcement expected by the administration of President Donald Trump with Brent hitting above $85/b. Here are what to expect in the coming months:

There may be tight global oil supply in the fourth quarter as a result of Iran’s rapidly falling exports and Venezuela’s economic collapse have led some analysts to predict Brent futures will surge to $100/b.

While Iran’s key oil customers are opting for more medium sour crudes from Saudi Arabia, Iraq, Russia and UAE, which is causing prices of these grades to soar and putting pressure on global refinery margins, prices of alternative Middle Eastern sour crudes surged to four-year highs, with the Platts December Dubai crude benchmark rising to $82.95/b.

Prices for Iranian crude, however, have not risen as sharply, as Tehran is luring less-risk-averse buyers with discounts. This is why Iranian grades are also showing their continued competitiveness in China, a market that could prove more resistant to sanctions pressure.

There are projections that 1.7 million b/d of Iranian crude and condensate exports will likely leave the market by November, compared with April levels and Iran’s exports will fall to 1.1 million b/d in October according to Platts Analytics projects.

“The rate of reduction will slow thereafter, as sanctions-averse buyers will be out of the market by November 5,” Sheldon said. Exports will fall to 800,000 b/d by the fourth quarter of 2019.

Meanwhile, China and India are expected to continue to import some Iranian oil after November, while South Korea and Japan will likely halt purchases.

Top buyer China continues to buy a significant share of Iranian crude, with flows averaging 660,000 b/d in January-September, up from 602,000 b/d last year. Exports to India have averaged around 400,000 b/d in August and September, compared with 650,000 b/d in April-June.

FRANK UZUEGBUNAM