–Clyde Russell is a Reuters market analyst. The views
expressed are his own.–
By Clyde Russell
LAUNCESTON, Australia, Nov 6 (Reuters) – Middle East oil
prices may rise relative to other global crudes and physical
premiums stand to gain, assuming Asia’s major buyers cut
purchases from Iran.
China, Japan, South Korea and, to a lesser extent, India
have some work to do in order to reduce imports from Iran if
they are to satisfy requirements for renewing waivers from the
United States on sanctions on buying Iranian crude.
While the four major buyers of Iranian crude cut purchases
by 11.5 percent to 953,567 barrels per day (bpd) in the first
nine months of the year from the same period in 2012, much of
this is due to a 40 percent slump in Indian buying.
The United States, which is using sanctions against Tehran
in an attempt to force the Islamic republic to open up its
nuclear programme to international scrutiny, will review in
November whether to extend six-month waivers granted to the
Asian buyers.
China, Iran’s biggest customer, will have to cut the most in
order to meet its own target for a reduction of 5-10 percent in
oil purchases from Iran.
China bought in about 428,000 bpd of Iranian crude in the
January to September period, a gain of 1.4 percent on the same
period last year.
To make a 10 percent cut, China would have to lower imports
for the October to December period to around 238,000 bpd, or
about 240,000 bpd below the 478,500 bpd it imported in
September.
Japan’s imports from Iran for the first nine months were
194,136 bpd, a gain of 2 percent, and they were 252,200 bpd in
September, a jump of 35 percent on the same month in 2012.
If the world’s third-biggest crude importer were to also
make a 10 percent cut for the whole of 2013, imports for the
last quarter would have to drop to around 110,000 bpd.
South Korea doubled its imports from Iran to 139,700 bpd in
September from August, but overall is still closer to its target
of cutting them to 125,800 bpd for the June to November period.
To reach the target, South Korea’s imports will have to
decline to about 110,000 bpd in October and November.
India’s January to September imports stood at 193,900 bpd, a
slump of 40 percent over the same period last year.
However, India bought 296,100 bpd in September, a massive 96
percent jump on August’s imports.
The large reduction in imports earlier in the year has given
India wiggle room, but it probably isn’t politically a good idea
to be ramping up imports from Iran just prior to the U.S. waiver
decision if India wishes to be seen to be cooperating with one
of its allies.
Leaving India aside, China, Japan and South Korea would have
to cut imports from Iran by about a 410,000 bpd in October and
November from September’s levels to come close to meeting
targets.
It appears that they are already making steep cuts, with
Iran’s oil shipments in October dropping 30 percent year-on-year
to 719,000 bpd, the lowest since April, according to a Reuters
report on Oct. 25.
This was down from 966,800 bpd in September and the risk is
that November loadings will also fall as Asian buyers try to
limit purchases from Iran.
However, overall imports in Asia are unlikely to fall,
particularly in China where new refinery units are being
commissioned in the fourth quarter.
This means there is likely to be a scramble for other
crudes, particularly the heavy, sour grades that refiners
typically get from Iran.
The Brent-Dubai exchange for swaps , which
tracks the difference between the light, sweet North Sea grade
and the heavier, sourer Middle East marker, has been narrowing
sharply recently.
It was $3.15 a barrel on Nov. 5, slightly up from the
six-month low of $3.13 on Nov. 4, but well down from the 2013
peak of $7.10 on Sept. 9.
The backwardation of Oman futures has also steepened
recently, with the third-month contract now 2 percent cheaper
than the front-month.
Three months ago the front contract commanded a 1.4 percent
premium over the third, while six months ago it was 1.1 percent
and nine months ago it was just 0.2 percent.
The increasing backwardation is a sign that refiners are
willing to pay more to secure cargoes for near-term delivery.
Saudi Arabia’s decision to raise the official selling price
of its benchmark Arab Light grade for Asia for December to $3.45
a barrel over Oman/Dubai from $3.20 for November also shows
strengthening demand.
It is also probably the case that demand is improving for
seasonal reasons ahead of the northern winter, but the
likelihood of fewer Iranian barrels in the market will put
upward pressure on the prices of other Middle Eastern grades.
(Editing by Alan Raybould)
