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Analysis: Iran builds 50 mil barrel oil armada as exports plunge

Iran’s armada of tankers holding unsold oil has grown, with volumes climbing to three-year highs as US sanctions and a lack of buyers continue to squeeze the OPEC member’s crude sales and exports.

Iran’s oil tankers are now holding almost 50 million barrels of oil at sea, the highest since early January 2016, just before US then-President Barack Obama’s administration and its Western allies agreed a nuclear pact with Iran and lifted key oil sanctions.
This compares with around 40 million barrels of floating storage in July and up from around 15-20 million in May, according to Platts estimates.

These volumes are being closely watched in the oil market as efforts to get US President Donald Trump to meet his Iranian counterpart, Hassan Rouhani, grow, with a potential softening towards oil sanctions.

Iran resorted to floating storage for its crude under the previous Western sanctions on its oil which ran from 2011 to 2016. In early 2016, Iran accumulated almost 55 million-60 million barrels of crude and condensates, according Platts and independent estimates.

US-Iran tensions
Trump has said he might be willing to meet with Rouhani, though Rouhani insists any meeting would require the lifting of US sanctions as a precondition.

Iran has asked French President Emmanuel Macron to convince Washington to issue new waivers, or arrange a credit line backed by Iran’s oil sale revenues.

A relaxing of sanctions would mean a prompt unloading of these floating barrels at a time when the market could face a substantial oil glut amid slowing oil demand growth.

RBC Capital Markets Global Head of Commodity Strategy Helima Croft said the sudden firing of US National Security Advisor John Bolton could be a catalyst for a material de-escalation in tensions with Iran that could bring back around 700,000 b/d of Iranian oil, possibly by Q1 2020.

S&P Global Platts Analytics, however, does not expect that any breakthrough in US-Iranian tensions that would lead to significant supply increases in the very near term.

“We are comfortable with our forecast for crude and condensate exports to be capped at 400,000-450,000 b/d through the second half of 2019, and below 400,000 b/d in 2019,” Platts Analytics, Chief Geopolitical Advisor Paul Sheldon said.

Bulging storage
A bulk of the oil in floating storage is condensates, rather than crude, shipping and trading sources say. The majority of these volumes lie off Iran’s main oil terminals — Kharg Island, Assaluyeh and Soroosh.

Iran’s tankers are also storing oil off the coast of the UAE, near the bunkering hub of Fujairah. Sources also said a handful of Iranian VLCCs in Southeast Asia are also storing oil, with some occasionally carrying out ship-to-ship transfers onto smaller tankers.

All these tankers are owned by the state-run National Iranian Tanker Company and its subsidiaries. NITC operates the world’s second-largest fleet of VLCCs. Representatives at NITC and Iran’s oil ministry were unavailable for comment.

Inland Iranian storage is also growing sharply, according to sources, after Washington let limited sanctions waivers expire early May.

Data from geospatial analytics startup Ursa showed that Kharg Island’s crude inventories increased by 73% between late April and mid-June.

“There was not a lot of spare room left to place additional barrels, so inventories since have not built further, but nonetheless the levels remain quite high,” Ursa energy analyst Geoffrey Craig said.

Exports slide further
Iranian oil shipments in August continued to languish at just over a fifth of the level a year before.

Iranian crude oil and condensate exports, which averaged about 1.98 million b/d in August, have fallen by just over 1.5 million b/d in the past year.

Shipments of Iranian oil fell to 424,452 b/d in August from 509,226 b/d in July and 549,730 b/d in June, data from shipping sources and provisional tanker tracking showed. The bulk of this oil continues to flow to China and Syria.

Tehran’s vast shipping networks are also feeling the pinch of the crippling sanctions.

Last week, the US sanctioned an Iranian oil shipping group, including 11 oil tankers and former Iranian oil minister Rostam Ghasemi, for a scheme that is moving oil to Syria and other countries.
Source: Platts

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