Iran sees share of Asian crude oil market slip: Analysis

Platts– Iran’s crude and condensate exports fell in April with regional flows to Asia also slipping, as the country faces stiffer competition for supply into the region from its OPEC oil rivals. * Iranian oil exports fall 8% to 2.16 million b/d in April * Chinese, Indian demand ebbs * Stiffer competition from Saudis, Iraq * Austria to emerge as new customer Total estimated export volume on Aframaxes, Suezmaxes and VLCCs from Iranian ports in April fell to 2.16 million b/d from 2.35 million b/d in March, data from cFlow, S&P Global Platts trade flow software, showed. Iran now faces a tricky period as there are signs that Iran is losing its market share in Asia to countries like Saudi Arabia and Iraq.

Sources also said that Iran’s exports in April fell mainly due to two factors, as the country’s refineries are now running at full capacity, along with India and China reducing their purchases. Analysts have said that Iran needs a long term strategy to continue to increase its market share in Asia as it faces tougher competition from producers of medium sour crudes. “Iran is losing its market share in Asia to Saudi Arabia but on the other hand its share in European markets is increasing,” said Sara Vakhshouri, a Middle East expert who runs consultancy SVB Energy International. “Unlike Saudi Arabia which tries to secure a long-term market share in Asia, Iran doesn’t have a long-term market strategy and its focus is day-to-day sale of its oil. At the most it tries to secure annual term-contracts with its customers,” she added.

Indian, China flows drop Exports to Asia fell sharply to 1.361 million b/d in April from 1.754 million b/d in March, as shipments to its biggest customers, China and India, dropped by 28% month on month. Exports to India fell by almost 300,000 b/d month on month, as a political row between the two countries raises the risk of Iran losing the key crude buyer. India has expressed its disappointment that Iran has still not finalized the development of the 18.75 Tcf Farzad B gas field, and some reports have suggested that Indian demand for Iranian crude oil is falling as a result.

But sources at the Indian oil ministry told Platts that the South Asian country is hoping to finalize a $3 billion deal with Iran on the Farzad B gas field development by September 2017, Analysts expect Indian imports of Iranian crude to continue to fall if the impasse continues, and countries like Saudi Arabia and Iraq are ready to displace some of that crude. “India is disappointed over Farzad B field which was under negotiations for a long time… the Saudis are ready to substitute for Iranian exports to India,” said Vakhshouri. “Hence, India has many options in the market [as alternatives to] Iranian crude oil. On the other hand, due to low oil prices Iran cannot offer much in terms of incentives or discounts to India to keep the country satisfied,” she added. Exports to China also fell to 464,733 b/d in April from 596,774 b/d in March. Japanese demand for Iranian oil slowed down earlier this year but there are some signs that it could pick up slightly. Flows to Japan averaged 105,966 b/d in April, up from 33,129 in March and 95,321 b/d in February. Japanese refiners recently said they plan to register up to 20 VLCCs for Iranian oil imports under the government insurance program in fiscal 2017-18 (April-March), up from 19 tankers the previous year. A possible increase in the number of VLCCs could support higher imports of Iranian oil in 2017.

Exports to Europe rise

Flows to Europe in April, however, grew with stronger demand observed from key buyers such as Turkey, France, Spain and Greece. Iranian oil exports in April rose to 665,014 b/d from 523,291 b/d in March. Sources said buying interest from Turkey and France was the main driving force behind increased exports to Europe. Turkish demand for Russian Urals crude has fallen steadily in the past six months, and its demand for Iranian oil has surged accordingly. Flows to France and Greece in April rose by 61,505 b/d and 26,970 b/d month-on-month respectively. Trade sources said that spot purchases of Iranian crude were expected to rise in May and June as Russian Urals prices have increased sharply making medium sour barrels from Iran, Iraq and Saudi Arabia more competitive. Iran is however continuing to grow its market share in Europe. Last week, the National Iranian Oil Company said it is in the final phase of negotiations with Austrian refiner OMV to sign a term contract that will involve the sale of 40,000 b/d.

Production growth stalls

Iran, whose production growth has slowed down in the past six months, is hoping to sign long-awaited new oil contracts this month as it seeks to build on its post-sanctions output revival plans. In an interview with Platts, Deputy Oil Minister Rokneddin Javadi said Iran hopes to finalize the Iran Petroleum Contract this month. “We expect that very soon, hopefully within a month, the first agreement will be signed,” he said in late April. Iran also faces a presidential election on May 19, and a new administration could initiate a restructuring of NIOC. Iran produced 3.77 million b/d of oil in April, unchanged from the previous month, according to the latest Platts OPEC survey, still below its quota of 3.80 million b/d under an OPEC/non-OPEC production cut agreement signed in Vienna late last year. With Iran likely technically incapable of producing significantly more than its current level without further international investment, some OPEC members may be considering asking Iran to join in production cuts if the deal is to be extended past its June expiry, according to sources.

–Eklavya Gupte, eklavya.gupte@spglobal.com