Almost all Japanese and South Korean buyers of Iranian crudes have maintained their annual term contracts for 2014 at volumes unchanged from last year and expect steady imports during and possibly after the six-month suspension of US pressure on buyers of Iranian crude, sources familiar with the matter said this week.
Except for Japan's JX Nippon Oil & Energy, all other buyers in Japan and South Korea were heard to have kept their Iranian crude term contractual volumes at the same volume as 2013 for both contract cycles -- those starting in January and in April, sources said.

The US has agreed not to pressure six major oil-consuming countries to make further cuts to their Iranian imports while negotiations continue toward a comprehensive agreement on Tehran's nuclear program.

On January 20, six world powers -- the US, Britain, China, Russia, France and Germany -- reached a landmark six-month agreement with Iran. It gave Tehran limited relief from sanctions in exchange for nuclear concessions, but it maintained the core sanctions targeting Iran's oil revenues.

The sanctions slashed Iran's crude exports by more than half to around 1 million b/d after they came into force in 2012.

Despite the unchanged term contract volumes, monthly Iranian crude imports to Japan and South Korea are still expected to fluctuate on a month-on-month and year-on-year basis as barrels arriving at the end of a month are often counted as imports in the following month, sources said. Such next-month accounting could make a significant difference in monthly import volumes, as both Japan and South Korea have made significant cuts to their Iranian imports in recent years as a result of the stricter US and EU sanctions, sources said.

Over January-March, for instance, Japan imported an average 203,604 b/d of Iranian oil, down 17% year on year from 245,396 b/d, while South Korea imported an average of 134,700 b/d, down 13% year on year from 154,344 b/d, according to data from both governments.

In 2013, Japan cut its Iranian crude imports by 6% from 2012 to 177,414 b/d, while South Korea's imports dropped by 14% over the same period to 132,082 b/d.

Sources in Japan and South Korea said annual term contracts held by local buyers in the two countries have "flexibility" in lifting volumes, allowing the buyers to be able to cut their imports if sanctions prevent or limit execution of their contracts.

Yasushi Kimura, chairman of JX Nippon Oil & Energy, Japan's largest refiner, said in January that the company "slightly" reduced its Iranian crude imports under a renewed annual contract starting that month.

Japanese refiners Showa Shell and Cosmo Oil have renewed their annual term import contracts with the National Iranian Oil Co., effective from April, sources close to the deals have said. Officials at both companies declined to comment.

A source said Showa Shell's renewed term contract for 2014-15 was at the same level as the 2013-14 contract, adding that "everything is ongoing, nothing is unexpected [regarding the contract]."

Cosmo Oil also renewed its 2014-15 annual crude oil term contract with NIOC at the same level as last fiscal year, a source close to the deal said.

Refiner Idemitsu Kosan declined to comment on whether it planned to renewed its annual Iranian crude term contract beyond April.

In South Korea, SK Innovation and Hyundai Oilbank, the country's only Iranian crude buyers, declined to comment on their annual term contracts.

"The Iranian issue is still sensitive, and so we cannot say anything on Iran, including contract and volumes," an SK Innovation official said.

An official with South Korea's trade and energy ministry said "the government has been adjusting Iranian [crude import] volume in line with international efforts," citing its reductions in Q1 2014 and in 2013.

"Despite the decreased crude from Iran, there is no problem as shortfalls from Iran have been covered by supplies from other nations," the official said. "We are closely monitoring supplies."

Although it remains unclear whether the six world powers and Iran can resolve the dispute over Tehran's nuclear program during the six-month suspension, industry sources said current negotiations are expected to at least extend the current framework for another six months to keep the talks going.

A US State Department official has said Japan, China, India, South Korea, Taiwan and Turkey would be able to maintain crude imports from Iran without further reduction while the nuclear talks continue. But the department has not said whether that waiver carries an expiration date or other conditions.

By PLATTS

 

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