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Terminal News

Iran sanctions signal oil market vulnerability

Iran sanctions signal oil market vulnerability
The imposition of US sanctions on Iranian exports will result in a drop of one million barrels per day of oil exports and highlights vulnerability in the oil market.

As of today, November 5, Iran's current oil consumers have been ordered to completely eliminate their Iranian oil imports. According to energy consultancy Wood Mackenzie, these sanctions are the critical factor behind Brent's rally to over $80 a barrel in October.

While there is enough supply to meet demand this winter, the margin for error is narrow.

Ann-Louise Hittle, vice president macro oils, says: 'There are implications for the oil market.

'The biggest risk is this winter. Losing another one million barrels per day or more from Iran comes on top of a similar loss in supply from Venezuela over the last couple of years. Saudi Arabia, UAE and Kuwait have stepped up production since July to minimise the increase in price as the market tightens.

'We think there's just enough growth in supply from elsewhere to muddle through the next few months, meet winter demand and avert a price spike. Brent should hold around $78 a barrel, but it's a very fine line. OPEC spare capacity was an ample four million to five million barrels per day two years ago. There's only 700,000 barrels per day of additional available within 30 days right now.

'That means the market is vulnerable to strong demand in a cold winter or any new supply outage.'

She adds that they expect supply to grow 1.6 million barrels per day in 2019, with US tight oil driving this. 'But with Iran in the full grip of sanctions and Venezuela continuing to decline, that limited OPEC spare capacity will cast a shadow over the market for some time.'

Homayoun Falakshahi, senior research analyst with Wood Mackenzie's Middle East upstream team, adds: 'Beyond November 5, we expect crude exports to fall to one million barrels per day, though it could vary month to month; and condensate to 100,000 barrels per day.

'Crude sales will be concentrated around a core of supportive state buyers, China, India and Turkey.'

To read Tank Storage Magazine's in-depth analysis of the impact these sanctions will have on global markets, click here to read the full article.