Just How Low Can Iran’s Oil Exports Go?

Iran’s oil exports started to fall noticeably in August as key customers in Asia began to curtail oil purchases to either comply with the U.S. efforts to bring Iranian exports to zero, or to win waivers with the U.S. Administration.

Iran’s crude oil and condensate sales fell in August to below 2 million bpd—the lowest level in more than a year, according to tanker tracking data compiled by Bloomberg.

In September, the trend of reduced Iranian oil exports has continued, and analysts expect further cuts from some of Iran’s oil customers.

Going forward, there are two major factors for estimating how low Iranian oil exports could sink. One is how much of Iran’s oil China, India, and Europe will buy in October and then in November, when the sanctions kick in. The other is the concern that tanker tracking data may become less reliable, as Iran may try to use some ‘unconventional’ methods of keeping its oil sales on track, like switching off tracking devices on tankers—a ‘solution’ that Tehran is said to have used in the previous round of sanctions in 2012-2015.

Between September 1 and 15, however, Iran’s crude oil and condensate exports surprisingly increased by around 200,000 bpd compared to the August 1-15 period, preliminary trade flow data by S&P Global Platts showed this week.

Iran’s crude and condensate exports averaged 1.69 million bpd in the first half of September, up from 1.48 million bpd for the August 1-15 period.

Yet, if the trend this month continues, Iran’s oil exports would still be around 200,000 bpd lower than in August, when exports had averaged 1.92 million bpd, down from 2.32 million bpd in July, according to Platts estimates.

In the first two weeks of September, Iran’s crude oil exports made up 1.5 million bpd of the 1.69 million bpd total, while the rest was condensate, the ultra-light oil that Iran produces from its natural gas fields, Platts data showed.

According to Bloomberg tanker tracking data, Iran’s crude exports from September 1 through to September 15 were 1.6 million bpd, with condensate exports at another 190,500 bpd, for a total of around 1.8 million bpd.

Crude exports at 1.6 million bpd are down by around 35 percent compared to Iran’s peak 2.5 million bpd exports in April, just before the U.S. announced it was slapping sanctions back on Tehran.

Iran’s key customers—no.1 China and no.2 India—are not expected to cut off their imports of Iranian oil, although India may reduce some of its Iranian intake as it tries to maneuver between cheap Iranian crude and U.S. pressure to curtail imports.

India wants to keep importing oil from Iran, because Tehran offers some discounts and incentives for Indian buyers at a time when the Indian government is struggling with higher oil prices and weakening local currency that additionally weighs on its oil import bill.

In the first half of September, India’s imports from Iran dropped to 114,267 bpd from 134,267 bpd for August 1-15, although purchases from Indian state refiners are expected to recover in the latter half of this month, according to Platts, which estimates that Indian imports averaged 428,710 bpd for the month of August.

India is looking to win waivers, and its Iranian imports this month and next are expected to be 45 percent lower than the average between April and August—360,000 bpd-370,000 bpd for September/October compared to 658,000 bpd for April-August, according to data from trade sources obtained by Reuters.

Iran’s top oil customer China is not expected to cut its Iranian purchases, especially with the escalating U.S.-China trade war.

From September 1 to September 15, China’s oil imports from Iran surged to 813,333 bpd, nearly double the 466,333 bpd imports in August 1-15. For the whole month of August, Chinese imports from Iran averaged 505,033 bpd, Platts data showed.

Iran’s sales to Europe in the first half of September also jumped, with purchases from Italy, Spain, and Turkey steady. While Turkey may keep Iranian oil flowing, analysts widely expect EU companies in Italy, Spain, and France to cut off oil trade with Iran for fear of being cut off from the U.S. financial system.

While initial estimates earlier this year suggested that Iran could lose around 500,000 bpd of oil exports, in recent weeks analysts have started to warn that losses could be higher than 1 million bpd.

Amrita Sen, chief oil analyst at Energy Aspects, expects Iran’s exports to drop by between 1.5 million to 1.7 million bpd from the 2017 average—from about 2.7 million bpd-2.8 million bpd earlier this year to about 1 million bpd-1.2 million bpd by the end of this year, additionally tightening the market and potentially pushing oil prices into the $90s.

“Things are tightening up”, said the International Energy Agency (IEA) last week, expecting Brent Crude to break above $80 if other producers don’t make up for Iranian (and Venezuelan) losses.

By Tsvetana Paraskova for Oilprice.com