News ID: 192505
Published: 0639 GMT May 10, 2017

Analysis: Iran needs long-term oil strategy

Analysis: Iran needs long-term oil strategy

By Eklavya Gupte*

Total estimated export volume on Aframaxes, Suezmaxes and VLCCs from Iranian ports in April amounted to 2.16 mbd, according to data from cFlow, S&P Global Platts trade flow software.

According to Platts, the figure for March stood at 2.35 mbd. Sources said that Iran's refineries are now operating at full capacity.

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 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.

"Iran doesn't have a long-term market strategy and its focus is day-to-day sale of oil. At most, it tries to secure annual term-contracts with its customers," she added.


India, China flow drop


Exports to Asia fell sharply to 1.361 mbd in April from 1.754 mbd in March, as shipments to its biggest customers, China and India, dropped by 28 percent month on month.

India has expressed disappointment that Iran has still not finalized the development of the 18.75 trillion cubic feet (tcf) Farzad B gas field, and some reports have suggested that Indian demand for Iranian crude oil is falling as a result.

However, sources at the Indian Petroleum 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.

Exports to China also fell to 464,733 bpd in April from 596,774 bpd 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 bpd in April — up from 33,129 in March and 95,321 bpd 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 bpd from 523,291 bpd 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 bpd and 26,970 bpd 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 contract that will involve the sale of 40,000 bpd.


Production growth


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.

Deputy Oil Minister Rokneddin Javadi told Platts that 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 mbd of oil in April — unchanged from the previous month — according to the latest Platts OPEC survey, still below its quota of 3.80 mbd 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 is an energy expert.

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