Asian oil buyers will tread cautiously despite Iran deal

Tokyo (Platts)--16Jul2015/1224 am EDT/424 GMT

The nuclear deal agreed by Iran will lead to additional flows of its oil into Asia, arguably the world's most dynamic oil market and one where top exporters are already locking horns in a battle for market share.

But with the ink still drying on Iran's agreement, most Asian importers -- bound by existing contracts -- are likely to tread cautiously until sanctions are lifted officially.

The "road map" agreed in Vienna suggested sanctions on Iran were unlikely to be lifted before the turn of the year.

Under the Joint Comprehensive Plan of Action (JCPOA), Iran must show by October 15 it has met its commitments, and the International Atomic Energy Agency will issue a final report by December 15.

Still, while most buyers in Asia would consider boosting purchases from Iran from next year, some importers could consider taking cargoes for loading as early as November, assuming restrictions on insurance and shipping ease, industry sources said.

The first additional barrels from Iran could come from oil stored in tankers in the Persian Gulf.

Much of that is believed to be condensate.

Shipping sources told Platts that out of the 14-15 VLCCs said to be doing floating storage duty, most were holding condensate and fuel oil, with around four VLCCs storing crude.

"I expect new Iranian oil to enter the market by the November/December period," Facts Global Energy chairman Fereidun Fesharaki told Platts by email. "First, the condensates will be sold since the bulk of the floating storage is condensate."

COMPETITION

Iran sells the bulk of its crude exports to China, India, Japan and South Korea which, along with Turkey and Taiwan, have been able to continue to buy oil under exemption from US financial sanctions in return for reducing their collective imports to around 1 million b/d.

Taiwan's imports from Iran are negligible. The four bigger Asian buyers collectively imported an average 1.076 million b/d of Iranian crude from January-May, down 11.8% year on year, according to government data.

Iranian officials, including oil minister Bijan Zanganeh, have said the country's post-sanctions marketing efforts will prioritize Asia, where oil demand is still growing, albeit at a slowing rate.

But Asia has also become a priority for others, including Iran's Gulf neighbors led by Saudi Arabia and including Iraq, Kuwait, Qatar and the UAE as well as exporters from further afield, driven to seek new markets as US reliance on imported oil diminishes.

Iran is already competing with these producers, and industry sources see further challenges ahead.

FGE's Fesharaki said Iran will be able to place a considerable chunk of oil with some existing customers.

"New crude customers will be Turkey, South Korea and Greece, plus India, for some 500,000 b/d," he said.

ASIA REMAINS CAUTIOUS

Iran is currently exporting less than half the 2.2-2.3 million b/d exported before the EU and US imposed oil and financial sanctions in mid-2012.

Oil minister Bijan Zanganeh has said Iran can double this volume within months of sanctions being lifted.

On Wednesday, Iran's existing customers in Asia were cautious in their interpretation of the agreement, the actual timing of its implementation, and the eventual lifting of the sanctions.

State-owned Chinese oil companies, the biggest buyers of Iranian crude, have yet to start considering whether they will take more oil from Iran, sources said.

A source close to state-owned CNOOC said Iran could potentially offer longer-period letters of credit than other Middle East countries as it moved to secure a bigger share of one of the world's biggest markets.

Indian oil companies are maintaining the status quo on Iranian oil for now, not least because of likely political and administrative procedures the post-sanctions period will impose.

HPCL's refinery director, B.K. Namdeo, said: So many circulars, clarifications on insurance and all that is required. This will take time. In my view the market should not get too excited about the deal immediately".

HPCL stopped buying Iranian crude after insurance firms said sanctions on Iran meant cover could be limited or denied in the case of an accident at a plant processing Iranian oil.

MRPL, a major buyer, is not immediately considering a hike in crude imports from Iran.

Like Essar Oil, it has continued to buy Iranian oil despite the insurance cover risk.

KOREA, JAPAN VIEW

South Korea's SK Innovation and Hyundai Oilbank -- the country's only buyers of Iranian crude -- are not immediately considering increasing crude imports from Iran, according to company officials.

"If the sanctions are actually lifted, we could consider increasing crude imports volumes from Iran," an SK Innovation official said.

"But imports from Iran are unlikely to increase immediately due to the existing contracts. We will check long-term and short-term contracts."

In Japan, a spokesman for JX Nippon Oil & Energy, the country's biggest refiner, said: "We will carefully monitor developments over lifting the sanctions and decide on our response by looking at economics and market conditions comprehensively".

Another Japanese refining source said that, given falling domestic demand, buying more oil from Iran would mean buying less from other suppliers.

-Takeo Kumagai, takeo.kumagai@platts.com
--Pradeep Rajan, pradeep.rajan@platts.com
--Gurdeep Singh, gurdeep.singh@platts.com
--Charles Lee, newsdesk@platts.com
--M.C. Vaijayanthi, newsdesk@platts.com
--Edited by Dan Lalor, daniel.lalor@platts.com

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