Middle East Countries Ramp up Shipments to Offset Iranian Losses

Monday October 8, 2018

Up until now, only speculation has informed the debate about whether the U.S. sanctions against Iran will result in a massive crude market tightening due to loss of Iranian exports, or if other countries can make up for the shortfall; but on Monday a report of surging oil tanker rates and other hard numbers lent credence to argument that the tightening may not be nearly as severe as some think.

According to data from Clarkson Research Services Ltd., rates to haul 2 million barrel cargoes to Asia jumped to $40,275 in the week ended October 5, more than doubling from late September, as rival producers in the Middle East ramp up shipments.

Also, according to Petromatrix GmbH, Asia is sourcing more crude from the U.S. and West Africa: Olivier Jakob, managing director at Petromatrix, stated, "Crude demand from Asia increases from October and will peak in the next two months; that's why we expect October chartering activity will be higher than September."

Shipbroker Galbraith's Ltd. reported that a total of 78 supertankers were booked on the Middle East spot market in the first week of October, compared with 136 in all of September.

Fotis Giannakoulis, an analyst at Morgan Stanley, said in a note, "West Africa chartering activity is strong as key Asian buyers have started to look elsewhere to replace the Iranian volume, further reducing available tonnage in the Middle East."

Yet more news suggesting that Iran may not be as calamitous as initially thought: a U.S. government official said that Washington could consider exemptions for nations that have already shown efforts to reduce their imports of Iranian oil.

From the U.S.'s perspective, everything is unfolding as planned with regards to the sanctions: Refinitiv Eikon data showed that Iran exported 1.1 million barrels per day (bpd) of crude in the first week of October, compared to 1.6 million bpd in September and down from at least 2.5 million bpd in April before the U.S. withdrew from the 2015 nuclear deal with the Islamic republic.

Iran's stance is, unsurprisingly, defiant: oil minister Bijan Zanganeh on Monday stated that claims from Saudi Arabia's crown prince that the kingdom could replace Tehran's exports "can only satisfy (U.S. president Donald) Trump; no one else will believe him."

Presumably, that includes the analytical community, which continues to predict the worst outcome due to the U.S. sanctions: last week J.P. Morgan doubted that the Saudis could ramp up production sufficiently in the near term, and it forecast a supply shock that will cause Brent to reach the $90s.