Wednesday, April 24, 2019

US cannot force Iran oil exports to zero: Analysis

The US decision on Monday more than failing to snuff out Iran’s oil exports will disrupt markets and complicate Washington’s relations with Beijing and even its own partners, industry analysts say.
Observers expressed serious doubts after US Secretary of State Mike Pompeo said Washington’s aim was to bring Iran’s crude exports to zero as he announced an end to the waivers which allowed imports from West Asian powerhouse.
"It's difficult to imagine all exports being cut off, especially since China is still a major buyer of Iranian crude oil," Jim Burkhard, Vice President for Oil Markets at IHS Markit, told Associated Press.
Last month, Iranian exports of crude oil and condensate surged to levels near before sanctions to 1.70 million barrels per day (bpd), surprising market watchers.
As Iran’s largest oil buyer, China has defied the Trump administration’s demand that it gradually bring the imports to zero, increasing its purchases instead.
India is Iran’s second largest oil importer, with Turkey, Japan, South Korea also buying significant volumes.
All these countries have robust trade, diplomatic and security relationship with the US which is careful not to jeopardize it. By retracting its oil exemptions, the Trump administration is encroaching on their energy security.
Trump said on Monday Saudi Arabia and the United Arab Emirates would ensure an “appropriate supply” of oil along with the US.
It was first in July when Trump said Saudi Arabia had assured him to raise oil production if needed, but the US president ultimately had to issue waivers for Iranian exports in order to help cool down prices.
Industry analysts say the kingdom can barely raise output by 1 million bpd to 11 million bpd and even that would be difficult.
The Saudis and the UAE have tried to give the confidence to Trump to go hardcore on Iran, but observers say the question is how they can really do it and for how long.
With a potential output fall in Iran and further outages in Venezuela and Libya, the world could be short of 2 million bpd of oil output without an increase in Saudi output by the end of the year.
“The Saudis do not have 2 million bpd of spare capacity as it would imply production of 12 million bpd. They can likely produce a maximum of 11 million and even that will be running their system at stress levels,” Garry Ross, Head of Global Oil Analytics at S&P Global, said.
“A 2-million-bpd Saudi production increase would move the Kingdom’s oil production into unchartered territory and would wipe out completely the kingdom’s spare capacity,” Giovanni Staunovo, Commodity Analyst at UBS, said.
With supply concerns and dwindling spare capacity and oil market tightness worries, prices are expected to become more volatile over the coming months.
Saudi Arabia and US assurances on Monday failed to cool down the markets as crude leapt to its highest in six months.
International benchmark Brent crude futures closed 3 percent higher to $74.04 a barrel, firing up US inflation markets.
According to Michael Lynch, President of Strategic Energy & Economic Research in Winchester, Massachusetts, the ultimate impact depends on how hard the Saudis work to fill the gap and how Trump reacts if the crackdown impacts US consumers.
Edward Moya, senior market analyst at Oanda, told MarketWatch: “While the US wants to see Iran exports fall to zero, they won’t.”
In Tehran, Iranian officials meanwhile said the country is prepared for the US decision to end waivers.
"Whether the waivers continue or not, Iran's oil exports will not be zero under any circumstances unless Iranian authorities decide to stop oil exports ... and this is not relevant now," an unnamed source told Tasnim news agency.
"We have years of experience in neutralizing efforts by enemies to strike blows against our country," the source added.
Minister of Oil Bijan Zangeneh said on Tuesday the US “dream of zeroing out Iran's oil exports will not be realized and this policy of sanctions will fail with full force.”
“Basically, some regional countries announce their spare capacity more than it really is in order to excite the US and put pressure on Iran and calm down the consumers,” he said, in reference to Saudi Arabia and the UAE.
“The United States and its allies, by politicizing the oil and using it as a weapon, are making a mistake, the impact of which will boomerang on many sides given the fragility of the market,” Zangeneh added.

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