Unrest in Libya has slashed a big chunk of its crude oil output of 1.6 million barrels per day (bpd), with estimates of capacity shut down ranging from 500,000 to 1.2 million bpd.
Ahmad Ghalebani, Iranian deputy oil minister, said on Friday Iran had already seen an increase in demand following political upheaval in the Arab world.
“Demand for Iran’s oil has increased,” Iran’s semi-official Mehr news agency quoted Ghalebani as saying.
Italian oil refiner Saras SpA, traditionally a big buyer of Libyan crude oil, said in a Reuters interview on Friday that it was looking at replacing oil shipments from Libya and had already slightly increased sour crude supplies from Iran.
Saras General Manager Dario Scaffardi said his company was also looking at Kazakhstan, Azerbaijan, West Africa, Algeria and the North Sea for possible crude replacements for Libyan oil.
The United States has led a drive to isolate Iran through international sanctions and bring it to the negotiating table over its nuclear program.
The sanctions have targeted payments to Iran via the financial system, and this has made it more difficult for Iran to sell its crude abroad, forcing it to store large volumes of its oil at sea in very large crude carriers (VLCCs).
Many international oil companies are unwilling or unable to take Iranian oil, but others are less constrained, particularly in Europe and Asia.
Analysts say Iran is well placed to take advantage of the reduction in Libyan oil exports.
Although Libyan crude is typically high quality with relatively small amounts of corrosive sulphur compounds and Iranian crude is typically lower quality, Iranian oil is readily available and near to key European markets.
Iran has been storing large quantities of oil in tankers at sea, some of them off its Kharg Island in the Middle East Gulf and some of it in the Mediterranean.
Ship brokers and agents say Iran has at least 20 million barrels of crude, mostly Iranian Heavy, at sea in 10 VLCCs and up to another 20 million barrels in shorter-term storage.
“The Iranians sell most of their oil on a landed basis,” said Leo Drollas, chief economist at the Center for Global Energy Studies in London.
“They store their oil offshore or bring it closer to their clients. So the oil is already near their customers,” Drollas said. “Something like this happens and suddenly - Bingo!” A source at the Iranian oil ministry told Reuters Iran planned to divert some cargoes to Italy and other countries.
Asked about sanctions, the source said: “This is not a time to be talking about sanctions. The world needs our oil and we are ready to step in just like any other OPEC member country.”
Iran is unlikely to be able to increase oil production significantly as a result of the higher demand and rise in oil prices, which pushed the North Sea Brent futures benchmark to around $112 per barrel on Friday.
Ghalebani said Iran would respect its output target as part of the Organization of the Petroleum Exporting Countries.
Iranian oil output in January was 3.64 million bpd, according to Reuters’ monthly survey of OPEC producers, down from 3.67 million bpd in December and compared with an implied OPEC target 3.34 million bpd.
Drollas said Iran’s output capacity may now be only around 3.75 million bpd and that he expected its output capacity to fall toward 3.6 million bpd by the end of this year.
