Why the Saudis Can’t Keep a Lid on Oil Prices. And Why I Think the Iran Oil Sanctions are Overblown.

Interesting article, good insights by the author.  

Why The Saudis Can’t Keep A Lid On Oil Prices

Saudi Arabia is incapable of offsetting all of Iran’s crude oil supplies, according to the latest oil market message shared by several analysts who spoke to CNBC. Based on this, the analysts said, Brent crude could very well hit US$100 a barrel before this year’s end. Yet nothing is certain, and this uncertainty will only deepen as the Iran sanction launch approaches. It may turn out that things are not what they seem.

==============================

As an aside and a bit of a tangent, I'm just going to add my 2 cents here.

It seems the "Iran Sanctions" boogeyman is being sold as a horror movie by much of the Western media.  The U.S. sanctions against Iranian oil seem far too overblown to me.

Seems pretty obvious that Iran is getting ready to sell lots of its crude oil on the black market at seriously cut-rate prices.  Crude oil tanker transponders already getting shut off.

China and India seem likely buyers of cheap black market Iranian oil.  Neither China nor India have skin in the U.S. game of Iranian sanctions.  

If oil goes to $90 (or $100) will China and India be willing to buy Iranian black market oil at $50? Or $40? You betcha they will, despite vehement public protestations to the contrary.  

● India is already struggling with $80 oil, and it is already starting to impact their demand for oil imports.

● China is having monetary troubles (although their government is trying like crazy to cover up their fiscal difficulties).

Half-price black market Iranian oil seems a logical (albeit unspoken and hidden) solution.

How about everyone just calm the heck down, and ignore the scare hype from traders...

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Then I just don’t get it why Trump can’t get away from the Iran sanaction since the U.N. already released Iran from nuclear threaten. I get why Trump starts the tarde war with China, ( actually the whole world..) because there are values. 

What Trump will get from Iran sanction? Or why he so insisted to do? Political domination? Or he just simply wanna destroy Iran’s current regime? 

Any thought, Tom? 

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51 minutes ago, Keven Tan said:

Any thought, Tom? 

Probably not a good idea for me to go in depth into my opinions on this particular topic on this forum.

Suffice it to say that if Trump can manage to get the Iranian people to change the Iranian government to one that is willing to work with U.S. government, the sanctions will be dropped.

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Actually, the data suggest that on a net exports basis, after subtracting out rising domestic liquids consumption,  Saudi Arabia has been supply contained since 2005.

Their net exports of total petroleum liquids (BP data base) increased from 7.1 million bpd in 2002 to 8.7 million bpd in 2005 as annual Brent crude oil prices increased from $25 to $55 per barrel, but their net exports have been below the 2005 level for 12 straight years, through 2017, averaging only 7.9 million bpd for 2006 to 2017 inclusive.

Note the large increase in Saudi net exports from 2002 to 2005 as annual Brent crude oil prices approximately doubled, but as annual Brent crude oil prices doubled again,  from $55 in 2005 to $110 for 2011 to 2013 inclusive, Saudi net exports averaged only 8.0 million bpd during this three year period of triple digit oil prices.

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11 hours ago, Tom Kirkman said:

Probably not a good idea for me to go in depth into my opinions on this particular topic on this forum.

Suffice it to say that if Trump can manage to get the Iranian people to change the Iranian government to one that is willing to work with U.S. government, the sanctions will be dropped.

Only way that will happen is if the Regular Army and Air force turn on the Revolutionary Guard. 

My wife is Iranian. She is going over for two weeks with her Mum in November. I dare say her spending will help counter the sanction effects😉

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12 hours ago, Keven Tan said:

Then I just don’t get it why Trump can’t get away from the Iran sanaction since the U.N. already released Iran from nuclear threaten. I get why Trump starts the tarde war with China, ( actually the whole world..) because there are values. 

What Trump will get from Iran sanction? Or why he so insisted to do? Political domination? Or he just simply wanna destroy Iran’s current regime? 

Any thought, Tom? 

Iran needs to do one thing - publically drop the Destroy Israel mantra. It can still treat Israel as a state non grata which I suspect Israel and the rest of the World can live with providing the destroy Israel mantra is sincerely dropped.

Many Iranians don't understand why Iran turns itself into a pariah state for Palestine. About 15 years ago there was big campaign in Iran to raise money for the Palestinians. They were also short of blood so lots of Iranians donated blood. What happened - they took the money but refuse the blood because it had come from dirty Shias...

 

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3 hours ago, NickW said:

Many Iranians don't understand why Iran turns itself into a pariah state for Palestine. About 15 years ago there was big campaign in Iran to raise money for the Palestinians. They were also short of blood so lots of Iranians donated blood. What happened - they took the money but refuse the blood because it had come from dirty Shias...

When I was in the West Bank a few years ago, with an Arab, I asked how they could align with Hezbullah since it's a Sunni area. The answer, they don't really like them, but Hezbullah is the only one who stands up to Israel. The Saudis were fundamentally cowards with lots of money, the Saudis could right things if they wanted to, but were in the US's pocket. 

And being anti-Israel doesn't make you a pariah state in the region. Quite the opposite for many in the region. And by all accounts, the average Iranian is not aligned with the Mullahs. US pressure will not cause a regime change in the way we'd want. Bolton might think so, but he thought invading Iraq and toppling Saddam and the Baths would cause peace to break out. History suggests turning the screws on a people hardens them against you, even if they despise their leader(s). 

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23 hours ago, Tom Kirkman said:

Interesting article, good insights by the author.  

Why The Saudis Can’t Keep A Lid On Oil Prices

Saudi Arabia is incapable of offsetting all of Iran’s crude oil supplies, according to the latest oil market message shared by several analysts who spoke to CNBC. Based on this, the analysts said, Brent crude could very well hit US$100 a barrel before this year’s end. Yet nothing is certain, and this uncertainty will only deepen as the Iran sanction launch approaches. It may turn out that things are not what they seem.

==============================

As an aside and a bit of a tangent, I'm just going to add my 2 cents here.

It seems the "Iran Sanctions" boogeyman is being sold as a horror movie by much of the Western media.  The U.S. sanctions against Iranian oil seem far too overblown to me.

Seems pretty obvious that Iran is getting ready to sell lots of its crude oil on the black market at seriously cut-rate prices.  Crude oil tanker transponders already getting shut off.

China and India seem likely buyers of cheap black market Iranian oil.  Neither China nor India have skin in the U.S. game of Iranian sanctions.  

If oil goes to $90 (or $100) will China and India be willing to buy Iranian black market oil at $50? Or $40? You betcha they will, despite vehement public protestations to the contrary.  

● India is already struggling with $80 oil, and it is already starting to impact their demand for oil imports.

● China is having monetary troubles (although their government is trying like crazy to cover up their fiscal difficulties).

Half-price black market Iranian oil seems a logical (albeit unspoken and hidden) solution.

How about every just calm the heck down, and ignore the scare hype from traders...

Hi Tom,

I agree with a lot of your posts and they are great

and I agree every one calm the heck down and ignore the hype from the "speculators" I wont even call them traders!!!

they are " traitors"

lol

 

China and India buying EYE-RAIN-YEN oil seems like a shady deal off the black market that the Nigerian scammers sell for Bonny, Forcados etc with a steep discount and all that oil if it actually goes to anyone is "hi-jacked-stolen oil"

 

 

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20 minutes ago, ceo_energemsier said:

Hi Tom,

I agree with a lot of your posts and they are great

and I agree every one calm the heck down and ignore the hype from the "speculators" I wont even call them traders!!!

they are " traitors"

lol

 

China and India buying EYE-RAIN-YEN oil seems like a shady deal off the black market that the Nigerian scammers sell for Bonny, Forcados etc with a steep discount and all that oil if it actually goes to anyone is "hi-jacked-stolen oil"

Thanks for your kind words ceo_energemsier.

Related article from 5 months ago (reminder that Iran has already started turning off the location transponders on their crude oil tankers).

Oil Smuggling Could Be a $133 Billion Business

In 2018, global demand for oil is expected to reach about 100 million barrels a day. At an average price per barrel of $75, the total value of the global oil market is around $2.7 trillion.

But as much as $133 billion (nearly 5% of the total) is being lost to thieves and smugglers, and as the price goes up, so does the number of thieves and smugglers.

... Now that the United States is withdrawing from the nuclear deal with Iran, there is at least some concern that Iran will dodge new sanctions by selling its oil on the black market. The country’s official currency exchange rate is 42,000 rials to the dollar, but the black market exchange rage already has reached 66,000 following the U.S. announcement.

While any U.S. sanctions won’t be imposed for several months, there is little doubt that restrictions on oil exports will have the most severe effect on Iran’s economy. The country can’t afford to just sit back and take its punishment, it needs to sell its oil in order to keep the country afloat.

To help that effort, the Iran Revolutionary Guard Corps, which has developed as a strong force in the country’s oil and gas sector, may revert to selling oil on the black market as it was once said to do prior to the lifting of sanctions against the country.

A lot will depend on how many legitimate buyers of Iranian oil seek and receive U.S. waivers from the sanctions. That will determine the size of the shortfall in demand for Iranian oil and estimates of the impact have run anywhere from around 200,000 barrels a day to around a million barrels a day out of current production of about 3.4 million barrels a day. The more barrels taken off the legal market, the more that will be available to the black market.

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1 minute ago, Tom Kirkman said:

Thanks for your kind words ceo_energemsier.

Related article from 5 months ago (reminder that Iran has already started turning off the location transponders on their crude oil tankers).

Oil Smuggling Could Be a $133 Billion Business

In 2018, global demand for oil is expected to reach about 100 million barrels a day. At an average price per barrel of $75, the total value of the global oil market is around $2.7 trillion.

But as much as $133 billion (nearly 5% of the total) is being lost to thieves and smugglers, and as the price goes up, so does the number of thieves and smugglers.

... Now that the United States is withdrawing from the nuclear deal with Iran, there is at least some concern that Iran will dodge new sanctions by selling its oil on the black market. The country’s official currency exchange rate is 42,000 rials to the dollar, but the black market exchange rage already has reached 66,000 following the U.S. announcement.

While any U.S. sanctions won’t be imposed for several months, there is little doubt that restrictions on oil exports will have the most severe effect on Iran’s economy. The country can’t afford to just sit back and take its punishment, it needs to sell its oil in order to keep the country afloat.

To help that effort, the Iran Revolutionary Guard Corps, which has developed as a strong force in the country’s oil and gas sector, may revert to selling oil on the black market as it was once said to do prior to the lifting of sanctions against the country.

A lot will depend on how many legitimate buyers of Iranian oil seek and receive U.S. waivers from the sanctions. That will determine the size of the shortfall in demand for Iranian oil and estimates of the impact have run anywhere from around 200,000 barrels a day to around a million barrels a day out of current production of about 3.4 million barrels a day. The more barrels taken off the legal market, the more that will be available to the black market.

I would like to buy their traditionally  cooked pheasant on the black market!!

no wait we have a lot of good EYE-RAIN-YENS

who are AMERICANs now

who  can cook that meal

I will go hunt the pheasants!!!!!!

Tom, are you game? LOL

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5 minutes ago, Tom Kirkman said:

Thanks for your kind words ceo_energemsier.

Related article from 5 months ago (reminder that Iran has already started turning off the location transponders on their crude oil tankers).

Oil Smuggling Could Be a $133 Billion Business

In 2018, global demand for oil is expected to reach about 100 million barrels a day. At an average price per barrel of $75, the total value of the global oil market is around $2.7 trillion.

But as much as $133 billion (nearly 5% of the total) is being lost to thieves and smugglers, and as the price goes up, so does the number of thieves and smugglers.

... Now that the United States is withdrawing from the nuclear deal with Iran, there is at least some concern that Iran will dodge new sanctions by selling its oil on the black market. The country’s official currency exchange rate is 42,000 rials to the dollar, but the black market exchange rage already has reached 66,000 following the U.S. announcement.

While any U.S. sanctions won’t be imposed for several months, there is little doubt that restrictions on oil exports will have the most severe effect on Iran’s economy. The country can’t afford to just sit back and take its punishment, it needs to sell its oil in order to keep the country afloat.

To help that effort, the Iran Revolutionary Guard Corps, which has developed as a strong force in the country’s oil and gas sector, may revert to selling oil on the black market as it was once said to do prior to the lifting of sanctions against the country.

A lot will depend on how many legitimate buyers of Iranian oil seek and receive U.S. waivers from the sanctions. That will determine the size of the shortfall in demand for Iranian oil and estimates of the impact have run anywhere from around 200,000 barrels a day to around a million barrels a day out of current production of about 3.4 million barrels a day. The more barrels taken off the legal market, the more that will be available to the black market.

Yes Sir and the USN is ready to wreck em illegal barrels up!!!

signed off by a former USN -C

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13 minutes ago, ceo_energemsier said:

Yes Sir and the USN is ready to wreck em illegal barrels up!!!

signed off by a former USN -C

Impossible to stop black market trading.  Like playing whack-a-mole.  Nail one and another pops up elsewhere.  Like poking Jello.

Simple case of willing seller / willing buyer, hidden on the open seas.  China and India don't give a toss about U.S. ire against Iran.

I lived for a few years on the island of Borneo, in Sarawak.  Stayed for a while in a condo right on the beach front of the South China Sea, living room balcony facing the Sea, around 15 floors up.  Could see far out to Sea, with the vantage point of height.  Lots of smuggling activities at sea at night, visible from the living room.

Just a rhetorical question, why on earth would anyone pay full price for beer when the abundant smuggled beer was half price?  Especially if the cafes and restaurants openly stocked and promoted the cheap black market beer?  Back in the day, USD $2 could get you 4 ice cold cans of smuggled European beer.  Rhetorically, of course.

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Zarif made a statement this morning that they will happily except other currencies - no need to use USD.

So agree a price in Euros, Yen, Sterling, Yuan etc.

I have never seen why there is this supposed absolute rule that Oil must be traded in USD.

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India has increased iranian oil imports displacing ... US oil imports

 

Quote

 

Last month, Indian buyers lifted purchases of Iranian crude to 502,000 bpd, up 111,000 bpd over August, in “a last gasp” of purchases “before sanctions actually hit,” a U.S.-based trader said, adding that those additional barrels displaced U.S. crude.

Overall U.S. exports also fell 917,000 bpd to 1.7 million bpd in the last week of September, according to the Energy Information Administration, as a stronger U.S. dollar and Brent’s premium to WTI fell, making U.S. crude less affordable.

 

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14 minutes ago, Guillaume Albasini said:

So has China.

Chinese Imports Of US Crude Have "Totally Stopped" As Tariff Threats Persist

It has been roughly two months since China threatened to impose a 25% tariff on US energy imports (it eventually went back on those threats), and less than two weeks since the latest round of tariffs has been implemented. But even as China has shied away from its threats to punish the US energy industry, Reuters data are showing that imports of US oil to China have ground to a halt.

... In place of US imports, China, which is the world's largest importer of crude oil, is becoming increasingly reliant on the Middle East and Russiawhile it has also shifted to using Iranian tankers to bypass impending US sanctions on Iranian crude while also becoming more reliant on Iranian crude in general. 

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(edited)

5 hours ago, Guillaume Albasini said:

India has increased iranian oil imports displacing ... US oil imports

I was drinking with an oil trader friend last night, he buys and sells cargoes not someone who trades from home, and the way to see how much oil from Iran is going to India very soon will be to watch for a rise in Pakistan's imports of oil as that is where the Iranian oil will be unloaded before having an identity change on its way to India.

Edited by jaycee
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40 minutes ago, jaycee said:

I was drinking with an oil trader friend last night, he buys and sells cargoes not someone who trades from home, and the way to see how much oil from Iran is going to India very soon will be to watch for a rise in Pakistan's imports of oil as that is where the Iranian oil will be unloaded before having an identity change on its way to India.

Heh heh, good to know.

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Bolton seems to be aware India is one of the weak points for the enforcement of the sanctions and is trying to find other providers to subsittute  Indian oil imports from Iran.

"One of the things I think that's important, whether it's for Iraq or India or anyone else -- particularly that's been a purchaser of Iranian oil -- we've gone to really extra lengths to try and find substitute sellers of oil so that there would be alternative supplies at market rates," Bolton said.

https://www.news18.com/news/world/going-extra-length-to-find-substitute-for-iranian-oil-for-india-says-white-house-1898991.html

But it won't be an easy task. Cutting the iranian imports would mean a $6 per barrel rise in India’s oil import basket if the country cuts supplies from Tehran without compensation. Therefore the Modi government is actively pressuring the US administration to obtain a waiver. The whole story is also complicated by the fact India also needs a waiver for importing the S-400 missile system they want to obtain from Russia.

Maintaining the Bolton hardline on sanctions could jeopardize the US-India relationship and push India in the arms of China and Russia.

https://www.hindustantimes.com/india-news/india-makes-case-for-sanctions-waiver-from-us-over-russia-deal-iran-oil/story-HTDzBUDz7DCKnBToL5XiIM.html

We are entering a new era where the official data on oil imports from Iran could be very far from the real data. An era of stealth tankers and uncharted oiltrucks.

A unit of the National Iranian Oil Co. (NIOC) has signed some days ago a deal to build a crude oil storage facility near Iran’s southeastern port of Jask. A move to be less dependent from the Kharg terminal. But Jask is also only 300 km from the Pakistan border...  From there it could be easier to ship oil by road to Pakistan to circumvent the sanctions.

https://www.reuters.com/article/us-iran-oil-storage/iran-to-build-crude-oil-storage-facility-at-gulf-of-oman-port-shana-idUSKCN1MA0XC

https://oilprice.com/Geopolitics/International/How-Iran-Plans-To-Bypass-The-Worlds-Main-Oil-Chokepoint.html

 

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13 hours ago, Guillaume Albasini said:

Bolton seems to be aware India is one of the weak points for the enforcement of the sanctions and is trying to find other providers to subsittute  Indian oil imports from Iran.

India to keep buying Iranian oil despite U.S. sanctions: sources

India will buy 9 million barrels of Iranian oil in November, two industry sources said, indicating the world's third-biggest oil importer will continue purchasing crude from the Islamic republic despite U.S. sanctions coming into force on Nov. 4.

"Refiners have placed November nominations to lift 1.25 million tonnes (about 9 million barrels) of oil from Iran," one of the sources said.

Indian Oil Corp will lift 6 million barrels of Iranian oil and Mangalore Refinery and Petrochemicals Ltd 3 million barrels, the source told Reuters.

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Saudi spare oil capacity ready to be used when demand materializes: Falih

Saudi oil minister Khalid al-Falih Thursday said geopolitical tensions and speculators were behind the recent rise in oil prices to four-year highs, not collusion by OPEC and its allies.

OPEC has been increasing its oil production since June and inventories are rising counter-cyclically, Falih said at the Russia Energy Week forum in Moscow.

“That proves the point that fundamentals are not behind it,” said the minister, who oversees oil production in the world’s largest crude exporter. “The market has a strong influence. The true elephant in the room is geopolitics. This has all combined to feed the market frenzy.”

He reiterated that Saudi Arabia has ample spare production capacity which it is ready to use if the market needs it. With the kingdom producing 10.7 million b/d, it has some 1.3 million b/d of spare capacity available, he said.

“We are doing everything we can and then some. The proof will be that demand materializes,” he said. “It’s not going to be popular for me to say this, but the market is well supplied. Some would even say oversupplied.”

S&P Global Platts reported Wednesday that the US State Department was accusing OPEC of withholding 1.42 million b/d of spare capacity from the market. US President Donald Trump has criticized OPEC for not doing more to prevent prices from rising, as he prepares to reimpose sanctions on Iran in November.

“The United States continues to engage with OPEC countries and we encourage them to utilize their spare capacity to ensure world oil supply meets the demand,” a State Department spokesperson said in a statement to Platts.

Once the US sanctions on Iran go into effect November 5, Platts Analytics expects Iranian crude and condensate exports to fall to 1.1 million b/d, and to 800,000 b/d by the fourth quarter of 2019, down from 2.91 million b/d in April.

Falih said the market was too fixated on the Iran sanctions and that OPEC and its allies were prepared to keep supplies healthy.

OPEC, Russia and nine other countries have pledged to reduce overcompliance with production cuts that have been in force since January 2017, which they say will result in a 1 million b/d output rise from May levels.

“You have to remember that oil is fungible,” Falih said. “It doesn’t matter to global supply and demand who’s going up and who’s going down.”

OPEC Secretary General Mohammed Barkindo said that producing countries needed to be better at signaling their intentions, though he complained that the media and the market were not giving the OPEC/non-OPEC coalition enough credit for their efforts at stabilizing the market.

“We need to communicate more,” Barkindo said at the forum. “A lot has been done and is being done, led by the two leading suppliers at this conference. We want to urge stakeholders not to be overwhelmed.”

Russia, the world’s top oil producer, already pumped at record high levels in September, producing 11.356 million b/d, and energy minister Alexander Novak said Wednesday that his country could add up to 300,000 b/d in the next several months.

Falih said Saudi Arabia’s November output was likely to be slightly higher than October’s projected 10.7 million b/d. State-owned oil company Saudi Aramco sells its crude through term supply contracts, with allocations made monthly, but Falih said he would not rule out some spot sales, though he added that he was not aware of any pending.

“If there are any refiners out there, even if they are not customers, I suggest they contact the company right away and I’m sure they will be supplied,” he said.

_________________________________________________________________________

 

New Turkish Straits rules to shake up shipping, oil markets this winter

New shipping regulations in the Turkish Straits have increased delays in the region for vessels longer than 250 m and could be a headache this winter for the large tanker market as delays and demurrage build, sources said.

“Winter with the bad weather is a nightmare going through the Straits and costly due to waiting time,” a fuel oil source said.
Weather in the Mediterranean and Black Sea deteriorates in the winter, so freight rates are often higher in November and December.

New regulations were implemented in the Turkish Straits on September 1, requiring tankers over 250 m in overall length to have compulsory pilotage and a tug escort in the Dardanelles. The same applies to tankers over 200 m in the Bosporus.

In response to the new regulations, the Worldscale Association amended rates for voyages involving the transit of the Bosporus Strait, adding 16 cents/mt to all rates involving the strait from September.

Delays of longer than 12 hours are typically paid by the charterer. Therefore the new regulations will add hefty demurrage charges to voyage costs. LPG tankers over 150 m, oil tankers over 200 m and dry bulk vessels over 250 m are all restricted to day-light crossing of the Turkish Straits, and with daylight hours growing shorter as winter draws in there is less time for them to cross the straits, according to shipping agents.

The Bosporus and the Dardanelles to the south together form the Turkish Straits, the only commercially navigable transit route between the Black Sea and the Mediterranean.

The Black Sea is a leading region for loading oil products including Russian fuel oil, gasoline and naphtha and some market players expect cargo loadings on Aframaxes and Suezmaxes from the Black Sea could fall to avoid the potential issues, although flows have not yet been affected.

In the clean market, gasoline cargoes have continued to move east as traders are utilizing the East/West, the differential between Asian grade 92 RON/EBOB, arbitrage opportunity, with Q4 18 and Q4 19 Asian demand historically strong.

“The rates could affect gasoline, as some product is moving through the Black Sea, only on the Long Range tankers going east,” one gasoline trader said.

The regulations are also likely to affect flows of naphtha, which load on LRs in Black Sea ports including Tuapse and Novorossiisk, typically bound for the Asian petrochemical market. Traders are relying on the arbitrage from the region to Asia to cut back an overhang of product in Europe, which could be stymied by delays moving through the strait.

On the dirty side, Russian fuel oil, including highly viscous M100, loads from Black Sea ports including Taman and STS Kavkaz and these cargoes are then shipped east to the Singapore bunker market. Fuel oil is also shipped in the summer months from the Black Sea to Saudi Arabia to meet additional air-conditioning demand.

Looking at the bunkers market, delays for vessels passing through the straits can cause significant disruption to barge schedules at Istanbul. When there have previously been heavy delays passing through the straits due to heavy fog, bunker prices at the Turkish port have risen.

Physical suppliers at Istanbul have said that while vessels passing through the strait may be delayed due to bad weather or a lack of tugs available following on from the new regulation, they do not foresee any significant issues with their operations, schedules or demand levels.

________________________________________

 

Saudi Aramco has raised its November price for its Arab Light grade for Asian customers by 60 cents a barrel versus October to a premium of $1.70 a barrel to the Oman/Dubai average, it said on Thursday.

The company dropped its Arab Light OSP to Northwest Europe by 90 cents for November from the previous month at a discount of $2.70 a barrel to the ICE Brent.

The Arab Light OSP to the United States was set at a premium of $1.00 a barrel to the Argus Sour Crude Index (ASCI) for November, unchanged from the previous month.

The tables below shows the full FOB prices for November in U.S. dollars.

SPONSORED STORIES

Saudi term crude supplies to the United States are priced as a differential to the Argus Sour Crude Index (ASCI). United States

NOVEMBER OCTOBER CHANGE
EXTRA LIGHT +2.80 +2.80 0.00 LIGHT +1.00 +1.00 0.00 MEDIUM -0.60 -0.60 0.00 HEAVY -1.75 -1.75 0.00 Prices at Ras Tanura destined for Northwest Europe are set against ICE Brent: NW EUROPE

NOVEMBER OCTOBER CHANGE EXTRA LIGHT -1.35 +0.05 -1.40 LIGHT -2.70 -1.80 -0.90 MEDIUM -4.35 -3.35 -1.00 HEAVY -6.00 -5.10 -0.90 Saudi term crude supplies to Asia are priced as a differential to the Oman/Dubai average: ASIA

NOVEMBER OCTOBER CHANGE SUPER LIGHT +5.45 +4.85 +0.60 EXTRA LIGHT +2.55 +1.80 +0.75 LIGHT +1.70 +1.10 +0.60 MEDIUM +0.50 -0.20 +0.70 HEAVY -0.65 -1.35 +0.70 Prices at Ras Tanura for Saudi oil destined for the Mediterranean are set against the ICE Brent: MEDITERRANEAN

NOVEMBER OCTOBER CHANGE EXTRA LIGHT -0.15 -0.60 +0.45 LIGHT -1.90 -2.20 +0.30 MEDIUM -3.15 -3.45 +0.30 HEAVY -4.50 -4.60 +0.10

______________________________________________________________________

 

 

 

 

 

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Iran Oil Buyers Craving Obama’s Waivers Get Trump Shock Instead

Oil buyers who viewed Obama-era policies as precedent for U.S. sanctions on Iran are getting a rude shock.

A Trump administration demand that oil purchases should stop has blindsided Asian importers who assumed they would only have to reduce shipments from the Persian Gulf state. Now, one after another, buyers are complying to avoid being cut off from the American financial system when restrictions on Iranian supplies take effect in November.

The miscalculation that President Donald Trump’s rules will be similar to Barack Obama’s is at the root of crude’s recent surge over $85 a barrel and forecasts for $100 oil. As refiners are forced to shun Iran, the market’s being squeezed more than traders expected. While the U.S. granted waivers earlier this decade to nations that cut imports, such exemptions are proving harder to come by this time around.

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“The Trump Administration has signaled it is far less willing to use the provisions in the Iran sanction statute that allow for countries to receive exceptions if they demonstrate significant reductions in purchases of Iranian oil,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University in New York and a former Obama administration official.

That’s forcing buyers “to zero out their purchases of Iranian oil much more quickly at a time when oil markets are already tightening,” he said.

India is the latest major customer of Iranian oil to avoid purchases as its refiners declined to seek any cargoes loading in November. That follows Japan, where the government continues talks with the U.S. The demand for zero imports was first met by South Korea, which relies on America to pressure its northern neighbor’s leader, Kim Jong Un, to abandon nuclear weapons.

Difficult Negotiations
Government officials in India and South Korea — previously Iran’s second and third-largest customers — say negotiations with the U.S. administration are significantly more difficult than when the Obama administration imposed restrictions on Iran over its nuclear program. Washington isn’t willing to give waivers for mere import reductions, and instead wants a complete halt, they said.

Top buyer China is a wildcard. Its government has said it opposes unilateral sanctions by the U.S., with which it’s fighting a trade war. Earlier this decade, it remained the Persian Gulf state’s biggest customer, although purchases fell as Iranian production was squeezed by American restrictions. Over the past couple of months, the Islamic republic’s shipments to the Asian nation have declined.

U.S. Expectations
“We will consider waivers where appropriate,” U.S. Secretary of State Michael Pompeo said last month during a visit to New Delhi. But “it is our expectation that the purchases of Iranian crude oil will go to zero from every country or sanctions will be imposed,” he said.

The harder U.S. stance means the amount of oil being taken out of the market is higher than what was expected in May, when Trump announced plans to reimpose sanctions on Iran. With America “incredibly serious” about its measures, the consensus on export losses has risen to as much as 1.5 million barrels a day, from 300,000 to 700,000 barrels earlier, according to Ben Luckock, co-head of oil trading at Trafigura Group.

Iran’s Oil Minister Bijan Namdar Zanganeh has said his country will come up with “other ways” to mitigate the sanctions impact. Still, tactics such as using an alternative payment mechanism may not be enough to fully cushion the blow to its exports, which have already plunged to the lowest level since February 2016.

Cautious Buyers
That’s because Asian oil buyers and shippers will probably keep away even if Iran tries to keep its crude in the market. While they may not be technically falling foul of sanctions, any exposure to the Islamic republic’s cargoes could result in secondary restrictions or companies being cut off from American financial institutions.

“Potential deals with Iran just pale in comparison with deals in the United States,” Brian Hook, the U.S. State Department’s special representative for Iran, said at a press briefing on Sept. 25, adding that the administration will “vigorously and aggressively” enforce sanctions.

As the chances of getting a waiver dwindle, oil processors in Asia are not only scrambling for alternative supplies, but may also have to bear higher costs. Plants that were originally configured to process Iranian crude may need to undergo rework.

Crucial Waiver
Some South Korean facilities, for example, are optimized to run Iranian condensate, a type of ultra-light oil. “So obtaining the waiver from the U.S. is extremely crucial,” said Kim Jae-kyung, a research fellow at the Korea Energy Economics Institute.

Energy firms also have to contend with the possibility of losing access to shale supplies, potentially denying them the chance to secure relatively cheap cargoes. When the Obama administration had imposed restrictions in 2012, U.S. output was almost 50 percent lower than current levels and American crude exports were banned.

While Brent crude, the benchmark for more than half the world’s oil, was trading above $86 a barrel at 11:27 a.m. in London, futures of West Texas Intermediate — the U.S. marker — were about $10 lower at $76.30 in New York.

“Companies have a choice either to do business in Iran or in the United States,” the U.S. State Department’s Hook said. “Very few companies are going to choose Iran over the United States, and so that’s just the economic reality.”
Source: Bloomberg

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Tankers: Key Persian Gulf-China VLCC freight rate at 2018 high as Iran sanctions loom

Asian benchmark VLCC freight rate hit the year’s high Thursday on the back of impending Iran sanctions, surging bunker prices and a widening WTI-Brent spread, as charterers rushed to fix their cargoes for the winter months.

For the first time this year, the key Persian Gulf to China 270,000 mt route breached the 70 Worldscale mark with China’s Unipec widely reported to have hired the Maran Aphrodite at w71 basis October 24-26 loading.
Late Wednesday, China’s newly launched Rongsheng Petrochemical Company placed the Xin Long Yang for a Persian Gulf to China voyage to move 270,000 mt crude at w70 for October 23-25 laycan.

S&P Global Platts assessed the Persian Gulf-China 270,000 mt route at w65.75 Wednesday. This corresponded to $10.43/mt or $1.42/b.

Surprisingly, the Asia VLCC market has been busy, contrary to expectations of a quiet run during the Golden Week holidays in China and a few other Far East countries.

The rates have risen sharply by w10 points over the last three trading days after meandering around the w50-w55 mark since July, before breaching the w70.

“The oil supply shortage concerns arising from the Iran sanctions and the surging crude price have triggered fixing frenzy to move oil. We have seen more China bound cargoes,” a source with a VLCC shipowner said.

The typhoon season and the fickle weather witnessed in the Far East for over a month now had resulted in the holding up of vessels at the discharge ports, thereby tightening the tonnage supply.

The widening WTI-Brent spread has also helped to create a strong demand for tonnage out of the West market, which has materialized into higher ton-mile demand, an Athens-based VLCC shipowning source said, adding that this has shortened the list of VLCCs available in the Persian Gulf.

Ton-mile demand is calculated by multiplying the volume of cargo moved in metric tons by distance traveled in miles. Covering a longer distance implies diminished availability of ships even if the total size of the fleet remains the same, or conversely, it offsets the increase in supply of tonnage.

The frontline Platts Brent-WTI Houston Swaps spread ended Wednesday at $9.64/b, compared with $9.20/b on September 26.

A wider spread makes the WTI-linked crudes more appealing to buyers in Asia and Northwest Europe.

SPIKE IN WEST AFRICA, CARIBBEAN VLCC DEMAND
China’s crude imports from West Africa are set to hit a seven year high this month, Arctic Securities’ Oslo-based research analyst Jo Ringheim said in a report.

Chinese refiners have purchased close to 1.71 million b/d of West African crude for October loading. The increase comes as the trade dispute with the US over tariffs prompts China’s refiners to find alternative sources of crude, Ringheim said, adding that the West African crude grades are similar in quality to US Shale.

However, reduced demand for US crude loadings can impact the ton mile demand, and can eventually soften the freight rates in the medium term.

Currently, VLCC rates are tracking seasonal trends and should continue to do so as refinery demand picks up in the fourth quarter, Ringheim said.

VLCC rates in West Africa, Caribbean and the Persian Gulf, are all bullish after a long spell of lackluster activity, a Singapore-based VLCC broker said.

BURGEONING BUNKERS
While the freight rate has firmed substantially, the expensive bunkers have eaten into the earnings of the shipowners, market sources said. The 380 CST delivered bunker price was at $527.75/mt Wednesday, which is up $31.5/mt week on week, S&P Global Platts data showed.

The time charter equivalent or the earnings for owners, at w70 is close to $26,000/day, a VLCC broker said, adding that the operating expense on a supertanker is around $10,000/day.

VLCC DEMOLITION BRIGADE ON AN OVERDRIVE
The scrapping activity in the VLCC segment has been robust this year with 32 vessels sent to the demolition yards, while just 11 units were scrapped in 2017, according to a report by shipbroker E A Gibson.

The poor returns on the VLCCs coupled with higher scrap prices at around $460 per light ton have encouraged shipowners to send their older vessels to the breakers.

The number of VLCC removals has exceeded the new deliveries, with 26 vessels entering the market between January and August, according to the EA Gibson report.

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Russia and Saudi Arabia struck a private deal in September to raise oil output to cool rising prices and informed the United States before a meeting in Algiers with other producers, four sources familiar with the plan said.

U.S. President Donald Trump has blamed the Organization of the Petroleum Exporting Countries (OPEC) for high crude prices and called on it to boost output to bring down fuel costs before the U.S. congressional elections on Nov. 6.

The deal underlines how Russia and Saudi Arabia are increasingly deciding oil output policies bilaterally, before consulting with the rest of OPEC.

The sources said Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak agreed during a series of meetings to lift output from September through December as crude headed towards $80 a barrel. It is now over $85.

“The Russians and the Saudis agreed to add barrels to the market quietly with a view not to look like they are acting on Trump’s order to pump more,” one source said.

“The Saudi minister told (U.S. Energy Secretary Rick) Perry that Saudi Arabia will raise output if its customers asked for more oil,” another source said.

Originally, the two countries had hoped to announce an overall increase of 500,000 barrels per day (bpd) from Saudi-led OPEC and non-OPEC Russia at a gathering of oil ministers in Algiers at the end of September.

But with opposition from some in OPEC, including Iran which is subject to U.S. sanctions, they decided to defer any formal decision until a full OPEC meeting in December.

PERRY LOOPED IN
Since then, Reuters has reported that Riyadh planned to lift output by some 200,000 bpd to 300,000 bpd from September to help fill the gap left by lower Iranian output due to the sanctions.

Russian output rose 150,000 bpd in September.

“I would expect Russia’s oil production will hover at around 11.4 to 11.6 million bpd until the end of 2018 and may increase further to 11.8 million bpd later on in 2019,” a source at a major Russian oil company said.

Russian produced 11.36 million bpd in September, up from 11.21 million bpd in August, Energy Ministry data showed.

Perry was made aware of the Saudi-Russia plan to lift output before the Algiers gathering, meeting with Falih three times in September and Novak once. The three did not meet together.

Perry’s spokeswoman Shaylyn Hynes did not comment on details of the talks but said the energy secretary, “continues to be engaged with leaders from other major oil producing nations and remains confident in their ability to boost output if needed”.

She said Perry had in recent meetings “impressed upon his counterparts that keeping supply up is important for the global economy”.

Oil prices rose to $85 a barrel this week as buyers of Iranian crude wound down their purchases to meet the terms of U.S. sanctions on Tehran.

Sources said Riyadh would help fill that shortfall because buyers needed replacement supplies. Saudi Arabia has spare capacity to produce oil at a higher rate and holds a large volume of crude in storage.

At the same time, Saudi Arabia is keen to maintain unity among the so-called OPEC+ alliance, a group comprising OPEC states, Russia and several other producers that has agreed on output curbs. That’s because it may need to change course and seek the collaboration of OPEC+ for any future production cuts.

FOOTBALL DIPLOMACY
In the run up to the private deal with Russia, Falih flew to the United States during the second week of September where he and fellow Texas A&M University alumnus Perry attended a football game in College Station, Texas.

Falih then held official talks with Perry in Washington on Sept. 10, the U.S. Energy Department has said.

Perry flew to Moscow two days later to meet Novak, while Falih also met Novak in Moscow a day later.

Perry told Reuters during his Moscow visit that Saudi Arabia, the United States and Russia had enough capacity between them to compensate for the loss of Iranian supply over the next 18 months.

After Moscow, Falih and Perry met again in Vienna where they attended an event in the Austrian capital, sources said.

“Perry was aware that Russia is going to ramp up oil output,” a third source familiar with talks said.

It was at this point that Falih and Novak discussed announcing a 500,000-bpd increase at the Sept. 23 Algiers meeting of OPEC and non-OPEC countries. The plan did not materialize, with any formal decision deferred until a regular OPEC meeting in Vienna on Dec. 6.

“Saudi Arabia is not going to flood the market and risk a price crash. Saudi Arabia has to work with other producers and see what are they doing, who is raising exports and to which market,” another source said.
Source: Reuters (Additional reporting by Timothy Gardner in Washington; editing by Richard Mably and David Clarke)

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04/10/2018

 

With the noose of U.S. sanctions already tightening on Iran’s oil exports, buyers and traders of crude are asking who can make up for the expected shortfall in supply. Most Iranian oil is heavier, or more viscous, than international benchmark crudes. It’s also high in sulfur, an impurity.

That leaves three countries — Saudi Arabia, Iraq and Russia — in the strongest position to fill the gap and profit from Iran’s misfortune. Even the U.S., which produces a different type of oil, could be a potential source of additional supplies.

1. Isn’t all crude the same?
Oil producers in the Middle East pump about a quarter of the world’s crude, and most grades that are both heavy and high in sulfur come from fields in the region. Refiners, due to environmental controls, must remove sulfur to turn crude into products such as gasoline and diesel. High-sulfur grades are referred to as sour.

Lighter crudes, such as U.S. West Texas Intermediate, are generally more valuable for refiners because they readily yield more high-value light products including gasoline. Heavy crudes like Iran’s are better for making diesel, jet fuel and other middle distillates.

“Refiners can adjust their mix of crude intake to a degree, but they can’t meet middle distillate demand just running U.S. light crude,” said Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy. While Iran’s buyers can still take U.S. oil, they would need some heavier crude to blend with it, as well as time to adjust their refineries.

Iran also sells an extremely light oil called condensate pumped from its South Pars gas fields. Condensate is often produced together with natural gas, and the Islamic Republic holds the world’s second-biggest gas reserves, according to BP Plc data.

2. How much oil is at risk?
OPEC’s third-largest producer was pumping close to 4 million barrels a day earlier this year, with about 2.5 million of that going to exports. This changed after U.S. President Donald Trump said in May that he was pulling the U.S. out of the Iran nuclear accord and planned to reinstate sanctions on the country’s energy industry. An earlier round of sanctions under former President Barack Obama slashed Iran’s oil exports by about half, to roughly 1 million barrels a day, from 2012 through 2015. Trump’s stated aim is to cut Iranian sales to zero, and while the curbs won’t take effect until Nov. 4, they’re already scaring away buyers.

Iran’s exports slumped to 1.7 million barrels a day in September, according to Bloomberg tanker tracking data. Even if Trump falls short of his goal and Iran is able to continue selling about 1 million barrels a day, as it did during Obama’s presidency, the country’s partial exit from global oil markets would still leave a big hole in supply.

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3. Where does Iran sell most of its crude?
Iran ships mostly to buyers in Asia, with Europe running a close second. In 2015, during the earlier round of international sanctions, the European Union put an embargo on Iranian oil and halted purchases completely. Iran currently ships to several countries in Europe, though its sales to France and the Netherlands dried up in September, according to Bloomberg tanker-tracking data.

Six buyers — China, India, Japan, South Korea, Taiwan and Turkey — received waivers during the earlier sanctions and were able to keep importing Iranian oil. Under Trump the U.S. hasn’t issued any waivers, nor has it said how, or if, it might do so.

Iran’s top customer China is the biggest question mark this time around. China continues to import Iranian crude, though India, another major buyer, plans to stop buying in November. South Korea and Taiwan have already halted imports from Iran.

4. What are producers doing to make up for the shortfall?
Saudi Arabia and Russia have said they’ll boost output to offset shortages in the market. Both can produce heavy, sour crude.

Saudi Arabia, the world’s largest exporter and Iran’s regional rival, currently pumps about 10.4 million barrels a day. The kingdom says it has a production capacity of 12.5 million barrels a day, though it has never pumped more than 11 million. Russia could add about 300,000 barrels a day, Energy Minister Alexander Novak said in a September interview in Vladivostok.

Iraq has added 230,000 barrels a day of production this year to reach a record 4.66 million in September. The second-biggest producer in the Organization of Petroleum Exporting Countries is boosting production at southern fields including the giant Rumaila deposit, and the increased flow could help offset missing shipments from its neighbor Iran.

Production in the U.S. is on track to rise by about 1 million barrels a day on average this year and again in 2019, according to forecasts by the Energy Information Administration.
Source: Bloomberg

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