The Iran deal: how much oil and how soon?

A historic deal between Iran and a six nation consortium- “P5+1”, was reached last week; an important feature of the deal is the lifting of sanctions that have been in place against Iran. The questions on the minds of shipping people boil down to “how soon?” and “how much additional oil would move?”

The lifting of sanctions will be timed based on an “Implementation Day”- a date when Iran’s compliance with certain restrictions on nuclear activities is confirmed. According to lawyers Watson Farley Williams, “No specific date has been fixed for Implementation Day, which could take several months.” This assumes that the deal is not stymied by the US Congress, which is viewed by experts as unlikely.

But even before vessels begin to load additional oil cargoes, the tanker market may see impacts; an initial concerns is that Iranian tankers currently storing oil could re-enter the markets. Evercore analyst Jon Chappell wrote: “More immediately, the National Iranian Tanker Company (NITC) owns 37 VLCCs, with up to 50% currently storing oil (almost 40 million barrels according to reports). That oil could be immediately delivered post any lifting of sanctions and those 18-20 VLCCs could enter the market and add to supply.”

Ship-spotters have reported movements of vessels with NITC VLCC, Starla reported to be bound for Singapore, where it will be better positioned once Implementation Day occurs. Another Iranian-controlled vessel Happiness, was also reported to be bound for South Korea, which had been a big customer for Iran’s oil.

Over the next year, following the OK for oil sales, more Iranian crude oil could move, which, by itself, would boost tanker demand in a market where oil oversupply has been estimated, currently, at a rate of 3m barrels per day (bpd). Analysts quoted in financial and trade media see an eventual ramp-up of 1m bpd in Iranian oil production, which had languished at 2.8m bpd during the first half of 2015 - about 1.1m bpd going to exports that were exempted from the sanctions.

The Iranian’s suggest that they could instantly produce an extra 500,000 bpd, presumably destined for export markets, at the time of implementation, and then another 500,000 bpd, within another six months- a timeframe roughly in early/mid-2016. However, these figures have been questioned. Energy experts Wood Mackenzie commented: “We do not expect Iranian crude to flood the market in the near-term. Moreover, although Iran has around 20m barrels of oil in storage, some of it is needed for operational reasons domestically and is therefore, not destined for export.”

One-time commercial relationships may have unraveled during the period of sanctions imposed on oil exports in 2012 the Wall Street Journal notes that Essar, in India (a large customer for Iran), had signed a major supply deal with Rosneft. It was suggested that National Iran Oil Co (NIOC) would need to offer competitive sales terms in order to win back its market share, at a time that other OPEC nations are pumping out more than its announced target of 30m bpd in recent months- contributing to the tanker boom. Wood Mackenzie offers a cautious view, saying: “We believe it could take Iran until the end of 2017 to increase production by as much as 600,000 bpd,” citing degradation to reservoirs and infrastructure.

An even more nuanced view of the impact of excess Iranian oil on the world’s crude oil markets came from Morgan Stanley’s energy/shipping analyst, Ole Slorer. On a webinar last week, he noted that oil from Brazil could prove to be less than previously estimating, telling his listeners, “The Iranian contribution could be easily absorbed.”

Infograhic from VesselValue.com:

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Posted 22 July 2015

© Copyright 2019 Seatrade (UBM (UK) Ltd). Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade.

Barry Parker

New York correspondent, Seatrade Maritime

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