US Gulf sour crudes rise on cancellation of Iran sanctions waiver

Medium sour crude values have found fresh support, following an announcement on April 22 that the US will end all waivers from Iran sanctions when they expire on May 2.

May barrels of USGC sour crude benchmark Mars were heard talked between $4.80/b and $5.05/b above WTI cash in the morning of April 22 and then later heard traded at WTI plus $5/b, up from the previous assessment of WTI plus $4.55/b on April 18. Also on the day of the announcement, June barrels of Mars were heard trading at WTI plus $5.10/b on, up from over $4.70/b.

The strengthening of USGC sour grades follows a general weakening trend in the market over the past several weeks as domestic refinery tastes continue to evolve to include an increased diet of light sweet crudes.

"If you think about it, Mars is back to a more historical level," one crude trader said. "Refiners are running more light sweet in cokers."

The differential for front-month US Gulf Coast benchmark Mars had fallen $3.55/b since hitting its strongest point in five years of WTI plus $8.10/b on February 14. Tightness in the sour crude market, as a result of OPEC crude production cuts, sanctions on Venezuela, and production curtailments in Canada, all helped boost sour crude in the US Gulf Coast at the beginning of the year. However, demand seemed to shift in recent weeks, sending USGC sours lower. The expiration of Iran sanctions waivers could send US Gulf Coast crudes higher once again.

The waiver expirations will impact some of Iran's biggest buyers of crude and condensate, including China, India and South Korea, all of which have been allowed to continue buying crude from Iran despite US sanction on the country. Any country that continues buying Iranian crude after the waivers expire will be risking US sanctions enforcement. The Trump administration aims to "bring Iran's oil exports to zero, denying the regime its principal source of revenue," the White House said in a statement. Without the extension of the waivers, crude buyers around the world will be under pressure as less supply will be available. The timing will put maximum pressure on the market, especially as demand typically ramps up during the summer season.

A recent uptick in interest for storing US Gulf Coast sour crudes also is an indication that values for Mars, and other similar grades such as LOOP Sour, are expected to be stronger in coming months.

Storage at the Louisiana Offshore Oil Port was heard trading late last week for May, June and July at between 5 cents/b and 3 cents/b.

Latin sours supported

Sources also expect differentials of sour grades from Colombia and Ecuador to continue climbing in coming days as the waivers for Iranian crude importers were scheduled to expire in May. Since the last quarter of 2018, more cargoes of heavy sour Colombian Castilla Blend and Ecuadorian Napo Oriente crudes have been imported by Asian refiners, specifically Japan, South Korea and China, as they are seen as replacements for Iranian and Venezuelan crudes.

The average differential of Castilla Blend in the third quarter of 2018 was minus $9/b compared to ICE Brent, according to S&P Global data. However, due to strong buying interest and limited supplies of heavy sour grades in the global markets, recent tenders of the Colombian crude for May loadings have been awarded around minus $4.50-4.00/b vs ICE Brent.