In a world awash with cheap oil, buyers in the world’s biggest consuming region aren’t clamoring for an additional 500,000 barrels a day from Iran.
As international sanctions against the country are lifted and Oil Minister Bijan Namdar Zanganeh looks to make good on his pledge to regain market-share lost in Asia, he’ll have to contend with a global glut that’s dragged down prices and spawned a buyers’ market with abundant supplies from the Americas to Africa and the Middle East.
While consumers, such as Japan’s Cosmo Energy Holdings Co. and India’s Hindustan Petroleum Corp., are open to buying more, they say Iran will have to provide an incentive. Purchases by some customers in Asia dropped about 50 percent after sanctions were imposed on the Middle East producer over its nuclear program.
“We can accommodate more Iranian crude, but it will depend on what terms and conditions they offer,” Sanjiv Singh, the director of refineries at Indian Oil Corp., the nation’s largest processor, said by phone on Monday. “Refining capacities and configurations have changed since the time Iran went under sanctions, so I can’t say if volumes similar to that time will be bought by refiners.”
Sanctions effect
In South Korea shipments from Iran have tumbled by more than half since 2011, according to government data compiled by Bloomberg. While Asia’s fourth-biggest oil user imported a record amount of crude last year, purchases from Iran fell about 8 percent to the lowest in data going back to 1995.
Iran was the second-biggest producer in the Organization of Petroleum Exporting Countries (Opec) 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 US to buy limited amounts of Iranian oil or risk losing access to parts of the global financial system.
“Until now, refiners had to annually reduce Iranian crude imports due to international sanctions,” South Korea’s Ministry of Trade, Industry and Energy said in an e-mailed statement on January 17. “They can now voluntarily decide their own import levels, considering domestic demand.”
Brent crude, the benchmark for more than half the world’s oil, added 48 cents to $29.03 a barrel by 1:34 p.m. Singapore time. Prices fell to $28.55 on Monday, the lowest close since December 2003.
Exports boost
Iran is targeting an immediate increase in shipments of 500,000 barrels a day, Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs, said on Sunday in an interview in Tehran. Iran plans to add another half million barrels within months. Japan’s Chief Cabinet Secretary Yoshihide Suga said on Monday the Asian country “welcomed” that Iran complied with the deal on its nuclear program. The nation cut annual crude purchases from the Middle East producer nearly half to about 166,000 barrels a day by 2014 from 2011 levels, according to data from the Ministry of Finance.
Japan’s Cosmo Energy will decide on an increase in Iranian crude purchases only if it makes economic sense, Eita Ushioda, a Tokyo-based spokesman for the company, said by phone on Monday.
“I hope Iran will consider better terms for Indian refineries to make their way in this growing market,” B.K. Namdeo, director refineries at India’s state-run Hindustan Petroleum Corp., said by phone on Monday. “Better terms could be in the form of services, like more loading days. Can’t say at this point whether we will be able to return to the volumes before sanctions any time soon. It will all depend on prices and other terms.”
In comments posted on the Oil Ministry’s web site on Monday, Deputy Oil Minister Roknoddin Javadi said Iran is determined to retake its share of the oil market, which plunged after crippling sanctions were imposed in 2012.
The United Nations nuclear agency certified on Saturday that Iran has met all its commitments under last summer’s agreement, prompting the lifting of a broad range of economic sanctions, including those covering the oil industry. Other sanctions unrelated to Iran’s nuclear program remain in place.
‘Very bad time’
Iran used to export 2.3 million barrels per day, but its crude exports fell to 1 million in 2012. Iran’s total production currently stands at 3.1 million barrels per day. “In the wake of removal of sanctions, Iran is prepared to increase its crude output by 500,000 barrels per day. Today a government order was issued to increase production,” Javadi said, adding that it will take a year to return to presanctions production levels.
Oil prices have recently plummeted to under $30 a barrel, the lowest in 13 years. Javadi said an oversupply of some 2 million barrels a day is to blame. Barclays analysts Alia Moubayed and Michael Cohen wrote in a research note to investors that the anticipated ramp-up in Iranian production comes “at a very bad time” for the oil market, given the existing pressure on prices.
“It is too early to say what kind of market impact Iran’s return will have or how much of Iran’s return is already priced in,” they wrote. “Our view is that Iranian wellhead production and sales from existing onshore and offshore storage will surprise the market initially, as the country shows its muscle, leading to downward price pressure,” they added.
They estimate that Iran already has some 46 million barrels of petroleum pumped and stored offshore and another 30 million to 40 million barrels reportedly in storage on land. They expect it will try to quickly reclaim lost market share in Europe, but getting additional sales out of customers, such as India and China, could prove trickier.
Iran has vowed to boost crude exports and retake its market share even if prices fall further, saying fellow Opec members exporting more oil than their quota are should be blamed. Iran’s regional rival Saudi Arabia is Opec’s largest producer.
Iran unveiled a new model of oil contracts last November aimed at attracting foreign investment in anticipation of the lifting of sanctions. Iran has sweetened the terms of the new model, hoping to bring in $30 billion in new investment. The new contracts last 15 to 20 years, and allow for the full recovery of costs. The older buyback model contracts were shorter term, and investors complained of heavy risks and suffering losses.
(Bloomberg News and AP)