Oil Games

IndraStra Global

Oil Games

By IndraStra Global News Team


Oil Games / Image Attribute:  466654 / Pixabay.com / Creative Commons 0

Image Attribute:  466654 / Pixabay.com / Creative Commons 0

On July 16, 2018, global oil prices retreated below US$ 71 per barrel as Saudi Arabia was said to offer extra crude to some of its customers in Asia following a plan to boost the output, while the United States (U.S.) is considering to go ahead with releasing of 660 million-barrel Strategic Petroleum Reserve (SPR) to rein in prices. Kindly do note, shale oil production in the U.S. has failed in ramping up to dampen the prices, even the investors at the Wall Street has run out of patience despite the fact they themselves peddled the glorious idea in early 2010 at the first place itself.

Till the beginning of this week, the Trump administration was actively contemplating tapping into SPR as an option — ranging from a test sale of 5 million-barrel to a larger release of 30 million barrels to ease off the growing political pressure before congressional elections in November. Meanwhile, Iran's OPEC governor Hossein Kazempour Ardebili urged Trump not to touch the emergency oil inventories and instead urged to drop sanctions. Sanctions on Iranian oil are expected to put upward pressure on oil costs, leading to higher gas and fuel prices in the U.S.

Now as per the latest development, the U.S. Treasury Secretary Steven Mnuchin reportedly said the Trump administration would consider temporarily exempting some countries from imposed sanctions on Iranian oil imports.

The members at OPEC and other major oil-producing countries like Russia, which have been holding back crude output since the start of last year, agreed in late June 2018 to begin increasing production by up to one million barrels per day amid global disruptions in supplies from Venezuela, Angola, Libya and due to the expected reduction of Iranian oil exports due to looming sanctions (effective from November 4). The decision was very much aligned with the market sentiments as forecasted by a survey, conducted by Gulf Intelligence, a Dubai-based energy think-tank.

OPEC has spent the past few years attempting to push up the price of oil following its collapse in 2014 when the price plunged from more than US$ 115 a barrel to hit a low below US$ 30 a barrel in early 2016.

The Saudi's extra crude offer (for selective Asian buyers) took most of the OPEC members - and especially Iran - by surprise.

The Iranian oil minister, Bijan Zanganeh, warned that "OPEC could be losing its effectiveness if the group's members have pumped extra crude than allowed in last month's supply agreement after Saudi Arabia reported a hike in its June crude output."

As the U.S. is trying to choke off Iran’s oil exports after quitting Joint Comprehensive Plan of Action (JCPoA) with the country and has been putting constant pressure on countries like India and others in relation to their ties with Iran with respect to oil imports.

On July 10, a senior Iranian diplomat has warned India that the “special privileges” for New Delhi will be affected (including the Chahbahar port project) if it tries to replace Iranian crude with supplies from Saudi Arabia, Russia, and the United States.

Under the OPEC output-cut deal dating back to 2016 gave Iran a production quota of 3.8 mbpd (million barrels per day). On June 22,  2018, the organization decided to apply its production reduction commitments at 100 percent but not more until the end of 2018. The agreement is on the same terms as those agreed in November last year. Now, keeping that deal intact was crucial to Zanganeh, OPEC sources said. Excluding Iran from the new deal would mean a loss of that output quota and further complicating the "existing volatility" in the global oil prices.

The Price


While it is opening the taps, last week, Saudi Arabia also reduced its official selling prices (OSPs) for most of its grades to the Asian markets for August, in a sign that it wants to attract more customers now that it has raised production. The OSP for the Saudi flagship Arab Light grade for Asia was reduced by US$ 0.20 to a premium of US$ 1.90 above the Dubai/Oman benchmark. This was the first cut in Arab Light pricing for Asia in four months and a drop from the highest OSP since July 2014.

U.S. West Texas Intermediate (WTI) crude oil prices ended Monday's session down US$ 2.95, or 4.2 percent, at US$ 68.06. WTI has fallen for two weeks in a row, dropping from a 3½-year high above $75 a barrel. But, the softer stance Washington announced on Iranian oil exports on July 16 helped send premium Brent crude prices down by 4.4 percent to about US$ 71.99 a barrel in London trading.


SITREP: The so-called "Asian" Bloc


According to Kpler, a Paris-based global commodity intelligence platform, China, India, South Korea and Japan, collectively account for almost 65 percent of the 2.7m barrels a day Iran exported in May 2018.

CHINA

Oil was under stress on concern about slowing demand from China, the world's 2nd largest crude consumer, after country's June crude imports fell -12 percent to 8.39 mbpd, the lowest in 6-months, as Unipec, a trading unit of Sinopec, the nation’s biggest refiner had scaled back crude purchases substantially due to shrinking margins and volatile prices. Also, China is simultaneously looking for an alternative in its recoverable shale gas resources, believed to be world’s largest and the government is actively considering to increase the domestic gas production to curb the usage of coal.

But, the whole equation is changing (dynamically) due to the escalation of a trade war between the U.S. and China. Recently, Dongming Petrochemical Group, an independent Chinese refiner has suspended crude oil purchases from the U.S. and has now turned to Iran as one of its sources of crude. On top of that, Beijing is planning to slap tariffs on U.S. crude oil imports and replace them with West African and Middle Eastern crude, including crude from Iran. China has already said that it will not comply with U.S. sanctions against Iran and it seems to be the only country for now in a position to do this.

INDIA

As far as India is concerned, in recent time, the country has been trying to counter OPEC's so-called "Asian Premium" prices by floating an idea to create a bloc along with China and others. Also, alternatively, trying to shift towards Iraqi oil to cut down its energy dependencies (marginally) on Saudi Arabia and Iran.

The monthly oil imports from Iran declined to 592,800 barrels per day (bpd) in June, down 16 percent from May, according to data from industry and shipping sources. But, a day ago, as per the local media reports, Iraq has overtaken Saudi Arabia as the largest crude oil supplier to India.

SOUTH KOREA

South Korea, one of Asia's major Iranian oil customers, imported 686,849 tons of Iranian crude in June, or 167,820 bpd, compared with 1.15 million tons in June 2017. That was down 9.5 percent from May. Whereas, from Saudi Arabia, crude imports in June rose 26.1 percent to 4.38 million tonnes, or 1.07 million bpd, from last year.

In the first half of this year, South Korea's intake of Iranian crude slid 33.9 percent compared with the same period last year to 6.13 million tonnes, or 248,367 bpd, according to the data. The country mainly purchases an ultra-light form of crude oil, known as condensate, from Iran, and its data does not give a breakdown of by-products.

JAPAN

Japan, Asia's fourth-largest buyer of Iranian supplies, received 5.3 percent of its oil requirements from Iran, or 172,000 bpd, in 2017 (fell 24.2 percent from 227,142 bpd in 2016), according to data from the country’s Ministry of Economy, Trade, and Industry (METI). In the first two months of 2018, imports had fallen 12.3 percent year on year to 192,289 bpd.

As an alternative, for the first time, Japan imported 118,607 barrels of Mozambique's Temane condensate in January 2018, a move that signaled northeast Asian end-users had stepped up efforts to secure ultra-light crude feedstocks amid dwindling Iranian supply.

With reporting by Bloomberg, ET Energy, Gulf Intelligence, OilPrice, and Reuters