Daily Management Review

Shortage Of Heavier Oil Possible Due To U.S. Sanctions On Iran And Venezuela


Shortage Of Heavier Oil Possible Due To U.S. Sanctions On Iran And Venezuela
The global supply of heavy-medium crude is set to be hit due to the tighter U.S. sanctions on Iranian oil to be implemented starting May, among other factors. Such concerns have also forced up prices of the scarcer barrels resulting in tensions between the buyers and sellers.
The increased Iranian sanctions by the US comes after an earlier sanction on Venezuelan oil, in addition to output issues in Angola – which is another of the larger producers of the dense crude grades. This rarer grade of crude is the base for products such as the high priced jet fuel.
The heavy crude is also the base material for manufacturing of low-sulphur fuel oil, demand for which has increased currently because of the impending new emission regulations for the shipping industry set to be implemented next year. The heavy crude was abundantly produced by Iran and Venezuela.
Despite its sanctions, there would not by any shortage in the overall global oil supply, say U.S. officials, partly because of increased shale oil production in the US. However, most of the additional oil that is pledged to be produced by the United States, Saudi Arabia and Russia, are of lighter grades.
According to reports, over the last few months, there has been a firming of prices for the heavier crude such as Norway's Grane and Heidrun. Over April, the price of Grane rose from around dated Brent plus 10 cents to close to dated Brent plus $1.00 a barrel.
According to further reports citing sources, a premium of over $2 a barrel to its official selling price (OSP) was charged for 2 million barrels of Basra Heavy crude from 2 million barrels of Basra Heavy crude by Iraq's SOMO this month.
Traders also said that prices reached all time records for a number of Angolan streams, which are pitted be alternatives for the crude from Iran and Venezuela.
According to reports in the media, many customers are delaying purchase of the heavy crude because of the price increase while some are ready to buy it at the increased prices. "We're resisting it as much as possible," reported Reuters citing one potential buyer. The high price have been opposed to by some of the regular customers of Sonangol which forced the company to offer the produce to other buyers as spot cargoes. Sources reportedly have said that these have sold quickly.
The rising uncertainty about the amount of Iranian crude may still flow despite the sanctions is partly responsible for the current stand-off between buyers and sellers. Such information is critical for its top buyers such as China and India. New Iranian sanctions are set to be imposed from May 1 and the US has announced the no more waivers ot any country would be given in relation to continued purchasing of Iranian oil.
It is being widely expected by analysts that the US sanctions of Iran and the subsequent ban on purchasing its oil would be flouted by China especially because there might be unwillingness in Washington about imposing sanctions on Chinese companies purchasing Iranian oil because such companies are also key customers for US shale crude.