Soaring Us Exports To Derail Crude Recovery
- For four decades, the U.S. Banned exports of crude oil. This was in reaction to the OPEC oil crisis of the 1970s and U.S. Oil output declining. But the export ban was lifted in 2015. Is now poised to become the top oil-producing country in the world.
- Is exporting crude oil at a record pace with no signs of slowing down. That has the potential to unbalance a global oil market in recovery, says energy expert Tom Kloza. “The exports.
Is exporting crude oil at a record pace with no signs of slowing down. That has the potential to unbalance a global oil market in recovery, says energy expert Tom Kloza. How soaring US oil exports may derail the crude rally, an energy expert says.
Back in mid-April, when to start exporting the millions of barrels it was pumping each day out of the ground, it found it had an unexpected problem: not only did it not have enough spare tankers, but few if any shipping companies were willing to move the cargo. There were two key reasons for this. The first hurdle was residual U.S. Restrictions on Tehran which are still in place and prohibit any trade in dollars or the involvement of U.S. Wicker patio furniture sets clearance s home design software for mac.
Firms including banks - a major hurdle for the oil and tanker trades, which are priced in dollars. As a result, by mid-April only eight foreign tankers, carrying a total of around 8 million barrels of oil had shipped Iranian crude to European destinations since sanctions were lifted in January. That equates to only around 10 days' worth of sales at the levels of pre-2012, when European buyers were purchasing as much as 800,000 barrels per day (bpd) from the OPEC producer. Michele White, general counsel with Intertanko, an association which represents the majority of the world's tanker fleet, said: 'We have witnessed a reluctance by our members generally to return to Iranian trade given the prohibition on use of the U.S. Financial system - essentially no U.S. The second and far bigger problem, were implicit Saudi Arabian threats for shippers not to transact with Iran or risk losing Saudi business. 'It’s seen as an unknown risk,” said one shipbroker.
“No one wants to disrupt their relationship with the Saudis.' Iran admitted as much. A senior Iranian government official, who declined to be named due to the sensitivity of the matter, acknowledged his country was finding it difficult to hire foreign tankers. 'We are working on the problems.
There are various issues involved, financial, banking and even insurance. It has improved a little bit since the lifting of sanctions but we still face serious problems.' Asked if this and the need to modernize some of the domestic fleet were holding back exports, he said: 'Of course it does.' , Iran's problems may not be resolved any time soon, adding that two other sources with other leading oil tanker operators echoed the above concerns and said they were not doing Iran deals at the moment. Fast forward a little over a month later, and somehow all the issues have been resolved. According to an update from Reuters, more than 25 European and Asian-owned supertankers are shipping Iranian oil, allowing Tehran to ramp up exports much faster than analysts had expected following the lifting of sanctions in January.
As noted above, 'Iran was struggling as recently as April to find partners to ship its oil, but after an agreement on a temporary insurance fix more than a third of Iran's crude shipments are now being handled by foreign vessels.' It appears that, whether with or without outside pressure, Saudi Arabia relented. 'Charterers are buying cargo from Iran and the rest of the world is OK with that,' said Odysseus Valatsas, chartering manager at Dynacom Tankers Management. Greek owner Dynacom has fixed three of its supertankers to carry Iranian crude. And while some international ship-owners still remain reluctant to handle Iranian oil, due mainly to some U.S. Restrictions on Tehran, increasingly more are discovering the necessary loopholes to buy Iran's discounted oil and ship it onward to their end destinations, pocketing a profit spread in the process. Reuters data shows that at least 26 foreign tankers with capacity to carry more than 25 million barrels of light and heavy crude oil, as well as fuel oil, have either loaded crude or fuel oil in the last two weeks or are about load at Iran's Kharg Island and Bandar Mahshahr terminals.
The resumption of international shipping of Iranian oil has been made possible by an increase in interim, limited, insurance cover by 'P&I clubs' - maritime mutual associations that provide 'protection and indemnity' insurance to shippers. Among the main reasons for the stalled shipping was that the International Group of P&I Clubs, which represents the world's top 13 ship insurers, increased the amount covered by so-called 'fall-back' shipping insurance from 70 million to 100 million euros ($113.36 million) in April. 'In the first days after lifting sanctions only Iranian ships were loaded in the country, mainly due to several problems in finding insurance/reinsurance,' said Luigi Bruzzone of ship broker Banchero Costa. And yet, despite a world glutted with oil, the discounted Iranian product led to a prompt resolution: 'The strong interest of the market in these trades pushed all the stakeholders to solve all the problems. And almost all P&I Clubs have granted their insurance.'
Some further details on the insurance roadblock from Reuters: The 'fall-back' cover is designed to offset any shortfall in payments from U.S. Reinsurers, who are still not allowed to deal with Iran. 'We are not surprised to see the increase in Iranian cargoes given the progress made by the P&I clubs and obviously the increase in Iranian production,' said Brian Gallagher, head of investor relations at leading Belgian tanker owner Euronav, which itself is not involved in Iran yet. 'We're interested in such trade. (but) it will still take time for Iran to be fully integrated as there remain restrictions around dollar denominated transactions.' Indeed, while the partial lifting of sanctions means foreign tankers can now transport Iranian oil, risks remain because large accidents might not be fully covered.
As a result, insurers say many first-tier oil shippers, many of them publicly listed such as Euronav, Teekay Group or Frontline, still shy away from carrying Iranian oil. If the fall-back cover is exhausted in an incident, Andrew Bardot, executive officer at the International Group of P&I Clubs, said that costs like 'collision and cargo liabilities, will not be covered, and will remain with the ship-owner'. A single Very Large Crude Carrier (VLCC) supertanker costs around $90 million, and the costs of a large oil spill can reach into the billions of dollars.
'The limitations of the 'fall-back' cover - together with other continuing restrictions, for example those relating to the U.S. Dollar and use of the U.S. Financial system - however have discouraged a number of ship-owners, and in particular the large shipping groups, from resuming trade with Iran in which they were previously engaged,' said Bardot. So with the logistical hurdles resolved, and with international vessels supporting Iran's own tanker fleet, traders said that its oil exports was now close to pre-sanction levels of around 2.5 million barrels per day (bpd).
Soaring Us Exports To Derail Crude Recovery System
'Iran has ramped up harder and faster than expected,' Citi analysts said. This means that the disrupted supply from the wildfires in Canada, and the outages from militant attacks in Nigeria, would be promptly replaced with Iran oil. This would put further pressure on Canada and Nigeria to restore full output over fears of losing long-standing customers to Iran.
Iran's oil exports were between 2.1 and 2.3 million bpd in April and May, up from 1.3 million bpd a year ago, when Iran was shut out of the European market and dependent on limited shipments to Asian buyers. Asia is the main destination for crude shipped by foreign vessels, with India, China and Japan the biggest takers, but at least four international tankers are also heading for Europe. India, in particular, is taking a lead role as its demand soars and refiners such as Essar Oil, Reliance Energy, Hindustan Petroleum Corp, and Bharat Petroleum Corp enjoy good ties with Iran. The non-Iranian companies currently chartered to carry its oil include Chinese state controlled shipper China Shipping Development, PetroVietnam and Japan's Idemitsu Kosan. Greek, Turkish and Seychelles-owned tankers are also shipping Iranian crude.
As a reminder, the key catalyst for the recent ramp in crude was Goldman turning bullish on oil due to near-term supply disruptions, which at least in the case of Canada are promptly getting resolved. (Click to enlarge) As such, it would not be at all surprising that with the world back to an oversupplied market, anywhere to the tune of 1-1.5 mmb/d, once the peak summer driving season ends, and as all the excess oil still scrambles to find a home, that we will see a rerun of the summer of 2015, when oil flat lined at $60 until mid-July, at which point it proceed to promptly crumble. That, as regular readers will recall, is also Morgan Stanley's thesis: namely that the summer of 2016 is merely a rerun of last year, and the price action will follow suit.
By Zerohedge More Top Reads From Oilprice.com:.
Is exporting crude oil at a record pace with no signs of slowing down. That has the potential to unbalance a global oil market in recovery, says energy expert Tom Kloza. 'The exports are what we need to focus on through the next 30 days,' Kloza, co-founder of the Oil Price Information Service, told CNBC's ' Futures Now ' last week. Production could decide how oil prices trade in the second half of this year and through 2019, he added. Domestic exports have not dipped below 1 million barrels a day since late November, as U.S. Oil producers fill the void left by reduced capacity from Mexico and Venezuela. Higher demand for petroleum and gasoline in South America has also boosted appetite for North American oil.
Crude oil exports rose to 2.175 million barrels per day, or more than 15 million a week, at the end of March. That marked its highest level on record. 'We think that number is going to go up to probably 20 million or more a week, get to maybe 2.5 million barrels a day,' said Kloza.
'The United States is in essence going to be exporting more than the United Arab Emirates, Kuwait, Nigeria, those individual countries.' Production and exports comes at a time when other oil producers are ramping up their own activity, said Kloza.
Russia recently had 'the highest output in about 11 months and there's some hints that maybe they're not going to be in this long-term supply cutting agreement with the Saudis,' said Kloza. On top of that, 'we're going to see higher production from Kazakhstan, from Brazil, from the United States, and from Canada.' Global oil production may put a dent in the progress made the Organization of Petroleum Exporting Countries in correcting a supply-demand imbalance. In 2016, OPEC and some non-OPEC members had agreed to limit production to re balance oil markets after their late-2014 plunge. Political events and international relations bring drastic moves to the market come summer. Among them, Kloza sees the Iraqi and Venezuelan elections in May and 'superhawks' John Bolton and Mike Pompeo coming into the White House as possible market movers.
Crude oil is 'the ultimate macroeconomic product,' Kloza said, saying that major banks like Morgan Stanley and Goldman Sachs estimate oil could top $70, a level Kloza said is 'priced for pure perfection.' Still, a number of headwinds are developing to keep crude's gains curtailed. West Texas Intermediate and Brent crude were both more than 1 percent lower on Friday, as trade tensions between U.S. And China escalated. On Thursday evening, President Donald Trump announced he would consider levying an additional $100 billion in tariffs against China in response to possible tariffs on U.S.-made products such as soybeans. 'Trade wars, a recession, any notion of any weakness in global economies are going to cut into,' oil prices, Kloza said. 'So keep that in mind.
We might yet be priced for perfection but perfection is a pretty difficult thing to see.' Kloza forecasts an average of $67 a barrel for Brent crude oil this year. It currently trades at that level. More From CNBC. Motley Fool With its stock down 52% over the last 12 months, shareholders of WageWorks (NYSE: WAGE) have had a rough time of things in 2018 - but one banker thinks the stock is poised to shine.
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Soaring Us Exports To Derail Crude Recovery 2017
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