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Return of Iranian oil to market on the cards

Return of Iranian oil to market on the cards
The prospect of a full return of Iranian oil to the international market has been concentrating minds in the industry. While the latest attempt to strike a deal over the Iranian nuclear project, in return for a lifting of sanctions, failed last week, the talks go on.

Exports of Iranian oil to OECD Europe, 900,000 bpd at peak in 2007, were 120,000 bpd in the first quarter of this year, according to London broker EA Gibson. Similarly imports to OECD Asia have fallen from 700,000 bpd to 270,000 bpd in the same period. Chinese imports have doubled from 2007's 530,000 bpd and have remained above 1m bpd since 2011.

Iran has made it clear it will try to return exports to pre-sanction levels if the embargo is lifted. While Iranian claims that it could lift production immediately by 500,000 bpd, and a further 500,000 bpd six months later, are regarded with scepticism by observers, it has 42m barrels of oil/condensate in storage, according to Gibson estimates, which could be quickly released to the market.

With other OPEC members showing little inclination to lower production to accommodate extra Iranian barrels, a supply glut looms which would be positive for the tanker market.

However more Iranian crude would bring the release of more Iranian tonnage. The Iranian fleet consists of 37 VLCCs, 12 suezmaxes, and five aframaxes with most of it out of the conventional market. While it would have to re-establish compliance with international standards to re-enter the mainstream market, the prospect of such tonnage joining the market, possibly before any significant increases in Iranian exports is definitely not good news.

Owners will be hoping that in the event of a lifting of the embarge, Iran really will be able to ramp up production rapidly to absorb the additional tonnage, the broker said.