Last week in oil: The big Brent recovery as Iran sanctions loom

the close of last week, the Brent crude price had risen to $75.82 a barrel, with WTI (Nymex) also up late on Friday. (AFP)
Updated 25 August 2018

Last week in oil: The big Brent recovery as Iran sanctions loom

RIYADH: At the close of last week, the Brent crude price had risen to $75.82 a barrel, with WTI (Nymex) also up late on Friday.
Oil prices rose amid the fall in US crude inventories by 5.84 million barrels, the biggest drop in four weeks. Cushing, Oklahoma inventories were at multi-year lows, 40 million barrels down since mid-May. This was attributed to record-high US refining use amid healthy refining margins, and the summer driving season’s robust demand. Also, there has been a disruption of Syncrude production in Alberta since June.
The recovery in oil prices last week was also due to a tightening market as a result of the upcoming Iranian oil supply disruption.
Further tightening in the market came as S&P Global Platts figures showed sharply lower oil exports from Iran for the first half of August, down to 1.68 million barrels per day compared to July exports that averaged 2.32 million barrels per day.
In addition to the lack of upstream investment and new technologies, as the European oil supermajors have walked away from investing in Iranian upstream projects, Iran’s old oil fields are operating under severe production constraints and despite any cutback in exports, those fields will not be mothballed.
Instead they will keep pumping oil at a slow and steady pace. Iran will return to the 2012–2015 scenario, where it accumulated crude in floating storage vessels waiting for sanctions to end. This is the only way Iran can maintain production from its old wells. While Iran will still be producing, there will be fewer buyers.
Together, China and India have been the two largest purchasers of Iranian crude at about 1.2 million barrels per day. Unlike during the previous 2012-2015 sanction period, both China and India are trying in advance to navigate to other suppliers to partially replace Iranian crude. During the previous sanctions, China and India slightly trimmed their Iranian oil imports, but oil-to-goods swaps continued. When Iran had fewer customers both nations benefited from deeper discounts and took advantage of better terms. These trade swaps took years to settle.
It’s already clear that China and India are adopting different strategies in regard to Iranian oil. China is one of the biggest buyers of US oil exports. However, given the current China-US trade dispute, the Asian giant does not want to lose its Iranian crude imports. China has already been hit with the loss of Venezuelan crude, due to the collapse of production in the beleaguered South American nation. Now, China is indicating that it is still willing to purchase crude from Iran, even going so far as to switch to shipping the crude on vessels owned by the National Iranian Tanker Co.
On the other hand, India needs to maintain easy access to the US financial system and to do so it must aim to comply with the US sanctions policy. Like China, India has also lost access to 300,000 barrels per day of crude from Venezuela. It is aiming to purchase more oil from the US, Mexico, Azerbaijan and the Arabian Gulf, but replacing nearly 600,000 barrels per day of Iranian crude is a major undertaking. It seems that the economies of China and India are both vulnerable to the tightening oil market and uncertainties over supplies later this year, when US sanctions against Iran will start to bite.


Frank Kane’s Davos diary: Swiss efficiency lapses, but so far Davos lives up to the cuckoo-clock image

Updated 22 January 2020

Frank Kane’s Davos diary: Swiss efficiency lapses, but so far Davos lives up to the cuckoo-clock image

Davos comes and Davos goes, but over the last five decades, the one thing you can rely on is Swiss efficiency, right? The trains run on time, the cuckoo clocks chime on the hour, and the snow is swept from the pathways within minutes of the first fake falling. That is the common (even cliched) view of the Alpine nation and its showpiece event, the World Economic Forum (WEF) annual meeting in Davos.

But — and whisper it very gently beneath your breath — maybe the legendary standards of Swiss efficiency are slipping as the WEF celebrates its 50th birthday. Evidence of a lapse from the highest levels of attainment came at Zurich Airport, when the luggage belt seized up inexplicably, and a full 10 minutes elapsedbefore a maintenance man came to attend to it. Tut tut.

Further signs of falling standards were on display at the railway station. The booking desks were besieged, as usual, by WEF delegates keen to complete the final leg of their journey up the Magic Mountain — a two-hour rail journey involving two stops at increasingly higher altitudes.

But only two of the 10 grills were manned, and the line grew longer and more grumpy with each passing minute. The mood was not helped when some trains were canceled and an extra hour was added to the journey. There was much muttering and dark looks shot when the train finally pulled into Klosters.

But thankfully, once you got to the heart of WEF-land, normal service was resumed. There had been a reasonable fall of snow that morning, which gave the place its usual fairytale appearance, but no traffic snarl ups as in previous years, when massive snowfall had caused the place to grind to a halt.

The shuttle buses that are the arterial life-channels of Davos — for those whose budgets do not extend to the black Mercedes limo — were running with their usual Swiss punctuality: Every 10 minutes or so, or even more frequently during peak rush hours.

These, in my experience over the past few years, are becoming frequently extended. Having battled through the registration process and attended one event at the nearby Seehof hotel, I imagined it would be easy to catch a ride on a virtually empty shuttle back to Klosters at around 9.30 p.m. But even at that hour, there was a long queue of unhappy souls waiting to make the same 20-minute trip to the other side of the mountain and their warm, welcoming hotel rooms.

It was the same thing on the opening morning of the annual meeting. I left my hotel — the homely and comfortable Cresta in Klosters — at 7 a.m. in the dark, and at minus 5 degrees Celsius. Again, there was a crowd of people standing huddled at the shuttle stop, shivering and stamping their feet.

The WEF shuttle service was up to the job, however, and I got into the Congress Hall with little trouble. The airport-style screening process — maybe a little more thorough than usual in view of the impending arrival of US President Donald Trump — passed smoothly. One request though: Please WEF, install some hot-air machines in the security hall. The body shock when you remove outer clothing to pass through the metal detectors was wicked.

Then down to business, which for a journalist at Davos means finding somewhere in the congress complex where you can rest a laptop while also providing a good people-watching vantage point. Over the years, I have learned that the Central Lounge — strategically located between the main plenary meeting halls and the (private) members lounge and bilateral rooms — is the perfect spot. Now, who will come my way in Davos 2020?