An unusually warm Northern Hemisphere winter and seasonally slack second-quarter oil demand give the West a chance to push hard to curtail Iran's crude exports while minimising the potential for a price spike, analysts at J.P. Morgan said. The unexpectedly quick recovery of Libya's oil production after its civil war, plus rising shipments from Iraq, are also providing a larger pool of immediate supply that could help cushion the impact of a reduction in Iranian shipments.
"Tighter sanctions overlap with slower seasonal demand as crude purchases by refiners start to ebb ahead of the turnaround season," analysts including Lawrence Eagles said in a daily note on Friday. "By dovetailing sanctions, supply and demand together, these efforts could exert further economic and political pressure on Iran, while 'theoretically' minimising market impact." US and European officials are debating how quickly and aggressively to push forward on new measures to ratchet up pressure on Tehran over its nuclear program.
While eager gradually to starve the Opec member of its petroleum revenues, they are also wary of risking a damaging spike in oil prices or provoking a backlash attack on the Strait of Hormuz. Oil prices have thus far shown only marginal concern over Iran, with US crude at $101 a barrel. While European Union importers have agreed in principle to an embargo on Iranian oil, diplomats said on Friday that it may take several months to come into effect - potentially pushing the implementation toward early summer, when oil demand begins to pick up and markets could be more jittery.
US President Barack Obama must also determine whether big refiners in countries such as China, India and Japan will be granted waivers from new sanctions on trading with Iran's central bank, the clearing counterparty for much of the country's oil trade. That process could take months. Assuming Europe halts imports completely and major Iranian customers - excluding China - cut purchases by half, J.P. Morgan estimates that Iran could lose half of its export business, some 1 to 1.2 million barrels per day.
"Coincidentally, this is roughly the same volume that we estimated that the Gulf Trio of Saudi Arabia, Kuwait and the UAE would have to cut back to rebalance the market in the second quarter of this year," the analysts wrote. For the moment, however, a handful of fundamentals factors have come together to provide a potentially convenient opportunity to press the issue at a time when the market could relatively easily cope with that loss.
Unseasonably warm weather across the US Northeast this winter has reduced demand for heating oil in homes by about a quarter versus the seasonal norm, according to data from the US National Weather Service. While colder conditions in the next two months - coupled with the closure of refineries run by stricken European firm Petroplus - could still drain distillate inventories, the seasonal low ebb of demand in the second quarter would provide a further cushion in the global market. "There is a brief window in the coming months where there is probably enough slack in the system to cover the loss of virtually all Iranian exports without the need for an IEA.
Comments
Comments are closed.