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Since early May, all US waivers on Iranian barrels came to an
end, but the big question is whether and how many Iranian barrels
reach their destination and what could follow in the near
future.
China seems to be still active in importing Iranian crude,
including volumes from Malaysian storage, originally loaded in
April. Storage is climbing yet again, with total volumes estimated
to have approached 50 MMbbl. Some of the shipments we've recently
observed obviously violate US sanctions against Iran after the end
of waivers. Ship-to-ship transfer of the cargo offshore seems to be
rather popular in an effort to present some of these volumes as
Iraqi oil to evade sanctions. As tension between Washington and
Beijing further increases, China continues to ignore US crude oil
by only importing minor volumes from the US Gulf. Demand remains
quite strong and healthy, with the country's refinery throughput
having reached new record-high levels in April. Chinese officials
have made it clear that the country is not willing to comply with
US sanctions against Iran. However, major refiners such as CNPC and
Sinopec, have suspended orders for Iranian crude.
It's very interesting that China hasn't yet imposed any tariffs
on US oil, despite the growing tension between the two countries.
Beijing doesn't seem ready to proceed, as this would limit the
country's sources for crude oil, during a period when global supply
looks rather tight, with OPEC+ production cuts still in place. At
the same time, China's appetite for crude oil has consistently been
very healthy, having surpassed ten million b/d since November 2018.
However, uncertainty driven by the trade war against the US has
been pushing Chinese purchases to lower levels. For now, we can be
confident that flows from Iran to China will continue.
Focusing on India, it seems that the country has halted all oil
imports from Iran, after two vessels carrying Iranian crude oil
discharged cargo in the country earlier this month. These volumes
were carried by the last two vessels that loaded Iranian barrels
with destination India in late April. The "HENNA" and the "DINO I",
both controlled by NITC, discharged Light Sour in Paradip and
Cochin accordingly earlier in May. After Prime Minister Narendra
Modi won the recent elections, officials in the country have made
it clear that India is not importing from Iran any more, but also
highlighted how these sanctions have hurt the country's energy
sector, which had been heavily relying on Iran for a sizeable chunk
of its crude oil. New alternative suppliers of crude oil have
already been sourced after the US refused to extend the waiver, but
with a significant cost for India to cover.
India, which has been importing around 300 thousand b/d from
Iran was asking the US for another sanction waiver, which was
declined. India is currently in full compliance with the US
sanctions on Iran, but with the elections finished, the question is
whether the country may once again resume oil purchases from
Iran.
The market expected to still see some activity from Iran to
India, even after the end of the US waivers, since no other crude
oil supplier would be willing to compete with the cheaper Iranian
oil. India has been getting around 10% of its imports from Iran
before the US sanctions, having been Iran's second largest oil
customer. The share fell to significantly lower levels since
November 2018 but remained quite significant for India overall.
Alternative suppliers Iraq, Saudi Arabia and Nigeria seem to have
increased their exports to India since the beginning of this month,
quickly replacing Iran, but without doubt at a much higher
cost.
Posted 29 May 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit