Iran oil output at lowest since 1980s

The IEA said it was becoming difficult to determine where Iranian oil was being shipped as Iran’s national oil company shut off satellite tracking systems on its ships (Reuters/File Photo)
Updated 14 June 2019

Iran oil output at lowest since 1980s

  • The US in November reimposed sanctions on exports of Iranian oil
  • President Donald Trump pulled out of a 2015 accord to curb Tehran’s nuclear program

LONDON/PARIS: Iran’s oil production has dropped to its lowest level since the 1980s as the full force of US sanctions weighed on exports, the International Energy Agency (IEA) said on Friday.
The US in November reimposed sanctions on exports of Iranian oil after President Donald Trump pulled out of a 2015 accord to curb Tehran’s nuclear program. Eight economies, including China and India, were granted waivers for six months — which expired at the beginning of May.
That has had a huge impact on Iran’s energy industry, with production plunging by 210,000 barrels per day (bpd) in May to 2.4 million bpd, its lowest levels since the Iran-Iraq war, the IEA said. Exports fell by 480,000 bpd to 810,000 bpd — less than a third of what it was exporting a year ago.
The IEA said sanctions have not yet completely cut off Iranian oil exports, but they have fallen drastically. It added that it was becoming difficult to determine where Iranian oil was being shipped as Iran’s national oil company shut off satellite tracking systems on its ships.
The news came as the Paris-based IEA, which coordinates the energy policies of industrial nations, revised down its global 2019 demand growth estimate by 100,000 barrels to 1.2 million bpd, but said it would climb to 1.4 million bpd for 2020.
“The main focus is on oil demand as economic sentiment weakens ... The consequences for oil demand are becoming apparent,” the IEA said in its monthly oil report. “The worsening trade outlook (is) a common theme across all regions.”

FASTFACT

480,0000

Decline of Iran’s oil exports in May, in barrels per day.

The oil demand growth forecast assumes the maintenance of US and Chinese tariffs imposed on goods in 2018, but the IEA said it had not factored in further US tariffs announced in May.
The IEA also attributed lackluster demand growth in the first half of the year to a slowdown in the petrochemicals industry in
Europe, warmer than average weather in the northern hemisphere and stalled US gasoline and diesel demand.
Demand growth was likely to pick up to 1.6 million bpd in the second half of the year on government measures to mitigate the economic slowdown and robust consumption in the non-developed world.
“Stimulus packages are likely to support growth in the short term. In addition, the major central banks have stopped or slowed interest rate increases, which should support growth in (the second half of 2019) and 2020,” the IEA said.
US sanctions on Iran and Venezuela, an output cut pact by the Organization of the Petroleum Exporting Countries (OPEC) plus its allies, fighting in Libya and attacks on tankers in the Gulf of Oman added only limited uncertainty to supply, the IEA said. Surging US supply as well as gains from Brazil, Canada and Norway would contribute to an increase in non-OPEC supply of 1.9 million bpd this year and 2.3 million bpd in 2020.
The IEA’s latest monthly report comes a day after attacks on two tankers in the Gulf of Oman, which caused oil prices to briefly shoot more than 4 percent higher, in the second spate of incidents in a month in the strategic shipping lane.
With some 20 percent of the world’s oil passing through the Strait of Hormuz, a disruption to shipping could roil markets.

FASTFACTS


Tankers defer retrofits to cash in on freight rates

Updated 19 October 2019

Tankers defer retrofits to cash in on freight rates

  • The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week

SINGAPORE: Tankers that had been scheduled to install emissions-cutting equipment ahead of stricter pollution standards starting in 2020 have deferred their visits to the dry docks to capitalize on an unexpected surge in freight rates, three trade sources said.

US sanctions on subsidiaries of vast Chinese shipping fleet Cosco in September sparked a surge in global oil shipping rates as traders scrambled to find non-blacklisted vessels to get their oil to market.

The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week.

By comparison, prior to the sanctions, shipping crude from the US Gulf to China cost around $6 million-$8 million.

The extraordinary spike in freight rates proved too good to miss for some shipowners who were due to send vessels to the dry docks for lengthy retrofitting and maintenance work.

“We can confirm several owners have postponed dry docking earlier scheduled for the months of October and November to take advantage of the skyrocketing freight rates,” said Rahul Kapoor, head of maritime and trade research at IHS Markit in Singapore.

The shortage of ships to move crude oil was so acute that some shipowners also switched from carrying so-called “clean” or refined fuels like gasoline to “dirty” cargoes that include crude oil, despite the costs of having to clean them later.

“Current rate levels are a no-brainer for pushing back scrubber retrofitting,” said Kapoor.

Starting Jan. 1, 2020, the International Maritime Organization (IMO) requires the use of marine fuel with a sulfur limit of 0.5 percent, down from 3.5 percent currently, significantly inflating shippers’ fuel bills.

Only ships fitted with expensive exhaust cleaning systems, known as scrubbers, which can remove sulfur from emissions, will be allowed to continue burning cheaper high-sulfur fuels.

Ships must be sidelined for up to 60 days for fitting these, according to IHS Markit and DNV GL.

While freight rates have abruptly come off their recent highs, shipowners can still profit from the higher charges.

“One cargo loading at current elevated rate levels can not only finance the scrubber capex, but also account for extra costs incurred to install the scrubber at a later date,” said Kapoor, referring to the capital expenditure of fitting the scrubber.

Freight rates are expected to hold firm for the rest of the year.

“With seasonal demand support and tanker supply deficit still pronounced, we expect (fourth-quarter) tanker freight rates to stay elevated and end the year on a high note,” Kapoor said.