Oil Sales Via IRENEX

The Oil Ministry plans to sell 100,000 barrels of Iran’s export grade crude oil on the Iran Energy Exchange.

“The plan currently awaits the Securities and Exchange Organization’s approval,” Seyyed Mohammad Qamsari, National Iranian Oil Company’s director for international affairs, told state-owned IRNA on Monday.

“Preliminary preparations and the infrastructure for offering crude oil on IRENEX have been carried out. Only some issues regarding pricing and payment remain.”

Qamsari announced that a pricing model for the crude has been sent to the SEO for approval and execution.

The ministry is committing a small portion of its production for this venture.

Iran’s total crude oil and condensate sales likely reached around 2.8 million barrels per day in September, two sources with knowledge of the matter told Reuters, nearly matching a 2011 peak in shipments before sanctions were imposed on the OPEC producer. Of that, about 2.2 million bpd was crude oil and the rest was condensate, a light oil that is often produced with natural gas and can be used to make naphtha for petrochemical production.

IRENEX was formed in 2012, probably a bad time as it was the height of Iran’s financial crisis, to give markets a footing in the energy trade. The founders wished to create a crude oil benchmark akin to Brent and the West Texas Intermediate. Yet, four years on, IRENEX is not much closer to this target than it was at its inception.

Today IRENEX is trading almost exclusively in electrical energy. The ‘Standard Parallel Salaf’—an Islamic contract similar to futures with the difference that the contract’s total price must be paid in advance—for electricity is the main traded product. The market, which works from 9:30 a.m. to 12:00 a.m. local time, does see the occasional trading of petroleum-based energy carriers. Petrochemical producers, in particular, sell condensates on the IRENEX.

Crude oil is, however, a far more serious business for IRENEX. The current move by the NIOC to sell crude on the exchange can give the market some weight. Yet critics have been quick to point out reservations.

The current bid is a second attempt at starting crude oil trading on the exchange. The company sold 2,920 barrels of oil, a paltry sum, on IRENEX in 2014. However, low demand, even for this small amount of crude, doomed crude trading.

Now, the NIOC is committing more, 100,000 barrels per day for a fresh start to crude trading. The oil will be export grade priced in rials and US dollars. The oil is delivered at export terminals in the Persian Gulf, though no specific port was mentioned by the executive. It also cannot be imported into Iran.

Also, it seems like the Oil Ministry is asking for too much power in pricing the oil.

“Of course, the SEO must set a price that is approved by the Oil Ministry for the export grade crude oil offered on IRENEX,” said Qamsari.

According to IRNA, the low demand for oil trading comes down to the high ask price of NIOC. The company does not want to sell below its set rates that upset the supply and demand dynamics of the market.

Naturally, if pricing comes under heavy restrictions, the market will hardly attract traders, though this point has not registered with Iranian officials, including those at SEO.

IRNA also cites unidentified people in NIOC who oppose the plan. Since the NIOC can sell its oil at more favorable prices directly to its clients, they say offering crude for export on IRENEX is an unnecessary hassle for the company that also lowers profits.

The NIOC, however, is pursuing the project hoping to kick off trading within six months.

“We hope to start offering crude oil on IRENEX before the [fiscal] yearend [March 20, 2017],” said the executive.