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THE NATION TUESDAY, JANUARY 10, 2012
ENERGY
OPEC, IEA, analysts appraise sanctions against Iran There is increasing concerns on supply and price of oil as United States and European Union gear up for sanctions against Iran. Analysts predict that sanctions against Iran and possible shut down of Strait of Hormuz (Persian Gulf) by Iranian Government would have adverse effects on the West and Iran and may push the price of Brent crude to $125 a barrel, writes EMEKA UGWUANYI with agency reports.
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HE Organisation of Petro leum Exporting Countries (OPEC), International Energy Agency (IEA) and oil and gas industry analysts have expressed concerns on the likely outcome of the planned sanctions against Iran by the United States and the European Union. The sanctions include embargo on importation of Iranian oil by US and EU to compel Iran rescind on its nuclear programme. The US is also wooing China, the biggest consumer of Iran’s oil to support the import embargo. Iran had last month conducted a 10-day military exercise on Strait of Hormuz in the Persian Gulf through, which 18 per cent of the world’s oil travels, a signal to the West that it can block the flow of oil from the route whenever it wants. According to CNBC report, any European embargo of oil imports from Iran would have a direct effect not just on Iran, but also on the most prominent consumers of Iranian oil and refiners in the Mediterranean, according to a series of recent reports. European governments last week said they have agreed in principle to ban imports of Iranian oil, but have yet to agree to a date. The last monthly oil report by the International Energy Agency (IEA), from mid-December, asserted that measures by the European Union and others “may not be agreed until end-January,” in order to allow for alternative sourcing by affected customers and coinciding with a seasonal fall in European refiner demand. The report added that the embargo would involve almost 600,000 barrels per day, while a broader embargo that included sales to states in the Organisation for Economic Cooperation and Development (OECD) would boost that number to 1.3 million barrels per day. Some of the most exposed EU countries include Greece, Spain and Italy. The biggest buyer of Iranian oil, China, CNBC said, is unlikely to be affected and has already expressed opposition to what it termed “unilateral” sanctions against Iran. The US Treasury Department said in a statement that Treasury Secretary Timothy Geithner would travel to Beijing and Tokyo to discuss “continued coordination with international partners in the region to increase pressure on the Government of Iran.” The Organisation of Petroleum Exporting Countries (OPEC) cites Iran as China’s second largest oil supplier, with 600,000 barrels per day. India, Japan, South Korea and Turkey also rank highly in the current buying list of Iranian oil. Iran’s production capacity Tighter sanctions, the IEA said, would stifle Iranian production capacity, forecasting a decline by 890,000 barrels per day to under three million barrels per day in 2016. In December, Iranian Oil Minister Rostam Qasemi
told CNBC he was not worried about the possibility of an EU embargo. Iran plans to boost its oil production from the current 3.5 million barrels per day to 5.1 million barrels per day by 2015. The IEA report also pointed out that a partial ban would “likely leave Mediterranean refiners confronting higher prices for replacement crude” from producers such as Saudi Arabia, Iraq and Russia. Whether they can fully step in to fully make up for lost Iranian heavy crude, which constitutes the majority of EU imports, remains unclear. European refiners, already facing negative margins in several cases, could come under more pressure if Asian buyers “secure incremental Iranian cargoes at discounted prices.” But an EU decision by the end of January to impose an embargo would, according to the IEA, “effectively begin to bite into March/April Iranian liftings.” OPEC’s December oil market report showed that Iran produced 15,000 barrels less in November than in October. At 3.55 million barrels per day, it is some 50,000 barrels less than average production in the third quarter. One official source of export numbers specifically comes from the producerconsumer energy dialogue, known as the Joint Organisations Data Initiative (JODI), but no details have been listed for Iran over the last three months. JODI depends on participating member states for data collection. The next update for JODI and the IEA comes on January 18, while OPEC publishes its monthly oil market summary two days earlier. Besides the tension, Reuters had reported that the International Energy Agency said it has no plans for immediate release of emergency oil stockpiles but noted it is prepared to respond to any significant oil supply disruption, but as no specific supply disruption is under way, the agency is not actively considering any action at the present time. The Persian Gulf waterway carries about 17 million barrels of oil a day, according to the U.S. Energy Department, which is about 19 percent of global consumption. The IEA’s last emergency release of government and industry stockpiles was in June, when about 60 million barrels of crude and oil products were made available in response to the slump in supply from Libya. It also made supplies available during the 1991 Persian Gulf War and when Hurricane Katrina damaged oil rigs and refineries in the Gulf of Mexico in 2005. Bloomberg report quoting Societe Generale, said Brent crude futures, trading near $113 a barrel might rally to $125 should the European Union ban imports of Iranian oil. Such a move would require about 600,000 barrels a day of replacement supply from Saudi Arabia, depleting the country’s spare
capacity, said Mike Wittner, the bank’s head of oil market research for the Americas. Iran would struggle to find alternative buyers for the banned crude, he said. Effects on EU European Union governments moved closer to halting oil purchases from Iran, stepping up the confrontation over the Islamic republic’s nuclear programme. EU foreign ministers plan to announce harsher sanctions on Iran’s energy and banking industries at their next meeting on January 30 after Greece lifted its objections to an oil embargo. “The EU imports 600,000 barrels a day from Iran, that will go to zero sooner or later, Wittner said. “Does Saudi have the ability to replace it? Yes. But then the market may become concerned about how much spare capacity Saudi Arabia has remaining.” While Iran will probably divert some of the unsold crude to Asia, the country would be unlikely to sell all of it there, Wittner said. Refiners would find it difficult to cut their intake of Saudi Arabian crude in order to take extra Iranian cargoes, because of contractual terms with the kingdom, he said. “China could take a little bit more,” Wittner said. “If Iran has 600,000 barrels a day looking for a home, I don’t think it would be easy to sell it elsewhere.” According to Money Morning, Iran just concluded a 10-day military exercise intended to prove to the West that it can choke off the flow of Persian Gulf oil whenever it wants. The world’s fourth-biggest oil producer is unhappy with fresh U.S. financial sanctions that will make it harder to sell its oil, which accounts for half of the government’s revenue. “Tehran is making a renewed political point here. The message is - we can close this anytime we want to,” says Money Morning Global Energy Strategist Dr. Kent Moors, who has studied Iran for more than a decade. “The oil markets are essentially ignoring the likelihood at the moment, but any increase in tensions will increase risk assess-
• Abdallah El-Badri OPEC Sec-Gen
ment and thereby pricing.” One reason the markets haven’t reacted much to Iran’s latest rhetoric is that although it has threatened to close the Strait of Hormuz many times over the past 20 years, it has never followed through on the threat. But a fresh wave of Western sanctions could hurt Iran’s economy enough to make Tehran much less cautious. The latest sanctions, signed into law by U.S. President Barack Obama recently, will make it far more difficult for refiners to buy crude oil from Iran. And looming on the horizon is further action by the European Union (EU), which at the end of this month will consider an embargo of Iranian oil. Access to international banking network “The present United Nations, U.S. and EU sanctions have already had a significant toll,” said Moors. “They have effectively prevented Iranian access to main international banking networks. Iran now has to use inefficient exchange mechanisms.” Because international oil trade is conducted in U.S. dollars, Moors said, Iran must have a convenient way to convert U.S. dollars into its home currency or other currencies it needs, such as euros.
Oil price below $103/bbl on mixed US supply signs
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IL prices hovered below $103 a bar rel at the weekend in Asia after a re port showed mixed signs about U.S. crude demand. According to Associated Press, benchmark crude for February delivery fell 59 cents to $102.63 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 26 cents to settle at $103.22 in New York. In London, Brent crude fell 3 cents at $113.67 a barrel on the ICE Futures exchange. The American Petroleum Institute said that crude inventories fell 4.4 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a decrease of 450,000 barrels. However, inventories of gasoline added 3.4 million barrels last week while distillates rose 5.2 million barrels, the API said. The Energy Department’s Energy Information Administration reports its weekly supply data later Thursday. Traders are also closely watching rising tensions between Iran and Western powers. Iran has threatened to close the key oil passageway Strait of Hormuz as possible retaliation to new U.S. and European economic
sanctions. The U.S. has said it will not tolerate such a move. Brent crude could temporarily jump to as high as $210 if the strait were closed, Capital Economics said. “However, neither side would want tensions to spiral this far out of control,” Capital Economics said in a report. “Indeed, the threat of another ‘super-spike’ in oil prices when the global economy is still so fragile is itself a very powerful reason for the West to hold off from any military action.” “By far the bigger risk is that oil prices will collapse due to an escalation of the financial crisis in the euro-zone.”
• Oil platform
Oil stockpiles fall, product Inventories increase
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RUDE oil inventories declined 4.43 million barrels to 334.5 million last week, the American Petroleum Institute said. Distillate fuel inventories (APISDIST) rose 5.25 million barrels to 145.4 million, the API’s weekly report showed. The gain was the largest since July 2008. Gasoline stockpiles rose 3.38 million to 219.1 million.
Inventories at Cushing, Oklahoma (APISCUSH), the delivery point for futures traded on the New York Mercantile Exchange, rose 200,000 barrels to 29.3 million. The government report may show stockpiles of crude oil fell 1 million barrels last week, according to the median of 13 responses in a Bloomberg News (DOEASCRD) survey of analysts. Gasoline inventories
probably gained 1 million barrels, the survey showed. Distillates were also expected to grow by 1 million. API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.