US sanctions against Iranian crude exports went back into effect Monday, although top buyers of Iranian crude were given temporary waivers until May, when they will be expected to cut purchases significantly.
Oil prices climbed Monday as the sanctions kicked in, but price increases were limited by the waivers, and by increased production from OPEC and its partners.
US sanctions are expected to bring Iranian crude exports down to 1.1 million b/d in November, and 850,000 b/d in the fourth quarter of 2019, down from an average of 2.686 million b/d in April and May, according to S&P Global Platts Analytics.
"But even if the month-over-month drop-off in November is not as steep as we expected, the requirement for continued reductions is likely to bring volumes down to our assumptions shortly thereafter," said Paul Sheldon, S&P Global Platts Analytics' chief geopolitical adviser.
Below are some key factors to watch as the sanctions go into effect:
- Iran's exports will fall to 1.1 million b/d in November, and to 850,000 b/d by the fourth quarter of 2019, down from an average of 2.686 million b/d in April and May, according to S&P Global Platts Analytics.
- Iran posted higher-than-expected oil shipments in October of 1.92 million b/d, signaling its last hurrah before US sanctions went into effect, provisional data from S&P Global Platts trade flow software cFlow showed.
- The US has given temporary waivers to China, India and Turkey -- Iran's top buyers -- as well as Japan, South Korea, Italy, Greece and Taiwan. However, the US maintained its goal of eventually reducing Iranian crude exports to zero.
- While many buyers, including Japan and South Korea, have sharply cut imports of Iranian crude ahead of the November 5 deadline, imports into China and India remained high in October, cFlow data shows.
- Iranian crude exports to China averaged 783,500 b/d in October, up from around 752,000 b/d in May, cFlow data shows. Iran has sent almost 20 million barrels of crude and condensate into leased storage in China in preparation for sanctions.
- As Iran's key oil customers look for alternative supplies, they are opting for more medium sour crudes from Saudi Arabia, Iraq, Russia and UAE.
- "OPEC will be determined to smooth out any market imbalances at its December meeting, but Saudi Arabia, Kuwait, the UAE, and Iraq have already responded to Iranian losses with higher production," said Sheldon.
- Platts Analytics forecasts November crude production from these four countries will surpass the 2Q18 average by over 1 million b/d. In addition, Russian output will be up by around 400,000 b/d over the same period.
- More European buyers are starting to cut their Iranian imports, with flows slumping to around 249,000 b/d in October, from 600,000-700,000 b/d in May.
- US crude production climbed to a record-high 11.4 million b/d in August, according to the US Energy Information Administration. But US crude exports cannot increase rapidly enough to replace Iranian barrels, until the Permian pipeline bottlenecks ease in mid-2019.
- Oil prices have eased since early October on concerns that slowing economic growth would lower demand, and as the market grew more confident that demand would be met by growing production from OPEC and non-OPEC countries.
- NYMEX front-month crude settled at $63.10/b Monday, and ICE front-month Brent at $73.17/b, both down over $13/b since October 3.
- The goal of keeping oil prices in check was central to the US decision to grant waivers to the top importers of Iranian crude, President Donald Trump said Monday. "I could get the Iran oil down to zero immediately, but it would cause a shock to the market. I don't want to lift oil prices," he said.
- US Secretary of State Mike Pompeo emphasized that Brent prices remain near the same level as six months ago, when Trump announced sanctions would be reimposed. Monday's Brent settle was down from $74.85/b on May 8.
- Platts Analytics revised its global demand growth outlook for 2018 and 2019 lower, and revised its price forecasts by roughly $2-4/b. Still, Analytics expects higher crude prices on average in 2019, with NYMEX crude averaging $73.75/b and Brent averaging $79.80/b.
- Rising US gasoline prices ahead of midterm elections caused President Donald Trump to ratchet up pressure on Saudi Arabia to increase production. However, gasoline prices have fallen since early October, with NYMEX front-month RBOB settling at $1.6919/gal Monday, down 45 cents/gal since October 3.
- Iran has been luring buyers with price discounts for its crude. Platts data shows Iran Heavy delivered to the West Coast of India averaging roughly $4/b under delivered Saudi Arab Medium in October, down from a 53 cents/b discount in January.
- Clandestine oil deliveries from Iran are expected to increase in November, which will make it trickier to accurately track exports. Iran has recently started concealing the movement of its oil tankers by turning off and on transponders in a bid to furtively sell its crude, a practice expected to increase.
- Iran has its own fleet of 60 tankers, and in the past has used its vessels as floating storage.
- Iran held some 50 million barrels of its crude and condensate in tankers when US and EU sanctions were in effect in 2012-15.
Direct link to full-size infographic (also attached): https://www.spglobal.com/platts/plattscontent/_assets/_images/latest-news/110218-iran-sanctions.jpg