Analysts Reflect on Oil Stored in Tankers

Analysts Reflect on Oil Stored in TankersAnalysts Reflect on Oil Stored in Tankers

Iran may roil global oil markets with plans to sell about 45 million barrels of fuel stored in tankers in the Persian Gulf within three months of the removal of sanctions on its economy, according to analysts.

Most of the stored oil is condensate that contains a sulfur compound, which complicates sales because many refineries cannot process it, said Victor Shum of IHS Inc. and Robin Mills at Dubai-based Manaar Energy Consulting, Bloomberg reported.

To market this large amount of oil within three months—the equivalent of about half a million barrels a day—Iran will have to resort to offering deep discounts, they said.

“Iran’s getting ready to open the taps,” Shum, IHS’s head of oil market research, said. “If they want to unwind this supply in the current weak market, they’ll have to offer discounts. It’s a buyer’s market.”

The country is seeking to reclaim the market share it lost under sanctions by boosting oil exports after a July deal with world powers to return to energy and financial markets.

The condensate in tankers moored off its southern coast will add to a worldwide oil glut, putting more pressure on crude prices that have dropped more than 40% in the last year.

Sanctions curbed Iran’s sales of crude and condensate to 1.4 million barrels a day in 2014 from 2.6 million in 2011, according to a report by the US Energy Information Administration in June.

 “What is probably in the price consensus is around a half-million-barrel-a-day hike” in shipments, Eugen Weinberg, an analyst at Commerzbank in Frankfurt, said by phone. “If the increase is stronger than expected, it’s likely to have a negative impact on the price.”

Iran pumped 2.8 million barrels of crude a day in September, making it the fifth-largest producer in the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg.

"It plans to boost crude production and exports by 500,000 barrels a day within a week after sanctions are lifted," Rokneddin Javadi, managing director of state-run National Iranian Oil Co., said in an interview earlier this month.

Iran may also need to spur sales of its sulfur-heavy condensate by offering discounts of at least 10-15%, Shum said.

Its main condensate customer, Dragon Aromatics Zhangzhou Co. of China, stopped buying after a fire at its plant in April, and an Iranian refinery designed to use it will not be ready until 2017, causing stockpiles to build, he said.