Iran
is
believed to be storing large volumes of crude oil on tankers in the
Persian
Gulf
, a sign of ebbing spring demand for heavy sour crude at a time when the
global economic crisis has already sapped the appetite for oil and crude
products.
The move has also sparked suggestions that
U.S.
pressure on oil companies doing business with the Islamic Republic has curbed
the country's ability to sell its oil.
However, the growth in the volume of Iranian crude being held on tankers seems
more in line with an annual trend that sees oil demand taper off in the second
quarter as refineries--especially in
Asia
where
most of Iranian oil is sold - embark on maintenance work.
"The apparently exploding floating storage operation...demonstrates Iran's
growing vulnerability as fewer and fewer refiners can process its increasingly
dominant heavy and sulphuric blends, while international political pressure is
being used to persuade more and more buyers to desist from trading with
Iran," Samuel Ciszuk, Middle East energy analyst at IHS Global Insight,
said Friday.
However, the political factor shouldn't be overstated, with clear market
fundamentals underpinning the logic of
Iran
's
decision to store oil offshore, he said.
"Seasonally...Iranian floating storage should be on the rise-—as it does
every year at this time. Some of its very heavy, high sulphur oil can only be
processed by certain refineries—when they go down,
Iran
has
no option but to store," oil analysts at JPMorgan said.
According to ship brokers there are six tankers in total - including five Very
Large Crude Carries capable of holding 2 million barrels of oil each - anchored
off the coast of
Assaluyeh
, the home to
Iran
's
Pars Special Economic Energy Zone. One Suezmax with the capacity to store 1
million barrels of oil is currently awaiting orders in Iranian waters.
Two VLCCs were also spotted off the coast of
Kharg
Island
,
where
Iran
traditionally stores its crude offshore in the second quarter, although ship
brokers said the tankers are likely to be on voyage and not part of the fleet
of ships storing Iranian crude.
In additional to seasonal factors, the economic crisis continues to weigh on
crude demand growth, resulting in rising spare capacity among members of the
Organization of Petroleum Exporting Countries.
"The Iranian storage is not surprising; (there is) too much heavy-sour
crude sloshing around at the moment," a shipping analyst at Shipbroker
Simpson Spence & Young Ltd. said. "Widening negative fuel oil cracks
tell the story," he said.
The refining of heavy sour crudes such as those produced by
Iran
results in a large volume fuel oil being produces as a by-product.
Cracks measure the profitability of a product after it has been produced by
refining a crude oil.
The high sulfur fuel oil crack in
Northwest Europe
has
widened significantly in recent months, reaching -$14 a barrel compared with an
average of -$4 a barrel in February.
A dearth of sweet as well as sour crudes in Europe have also reduced the
competitiveness of Middle East grades in the region, oil traders based in
Europe said.
European oil markets have seen sizable volumes of Heavy oil from
Syria
and
sweet crude from
Azerbaijan
in
April, at a time when refineries in the region have cut processing rates or are
still in maintenance, a crude oil trader based in
Europe
said.
Earlier this month National Iranian Oil Company cut its official selling prices
by more than $1 a barrel of its light, heavy and Forozan crude grades for
delivery into Northwest Europe and the Mediterranean as a response to the
demand environment in those regions.
In addition, the supply glut in
Europe
has
forced barrels of Russian Urals, normally discharged in the region, further
East, another oil trader In Europe said.
"Europe is long in crude; Russian, Azeri, Kazak, North
African," he said, adding some crude has to be arbitrage out (East) to
balance things up."
The arbitrage is likely to add supply to an Asian markets already gearing for
maintenance season and further reduce demand for
Middle
East
crudes there.