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Iran sanctions to have limited impact on forward crude prices: analysts

Singapore — The decision taken by the US Government on April 22 to end the waivers given to countries on importing Iranian crude is likely to have limited impact on forward crude prices, analysts from various banks noted.

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In a statement, the White House said it would not issue the waivers, known as significant reduction exceptions, to "bring Iran's oil exports to zero, denying the regime its principal source of revenue."

Iranian crude and condensate exports have fallen sharply in the past year after the US withdrew from the Iran nuclear deal in early-May 2018.

Exports averaged a five-month high 1.7 million b/d in March 2018, according to S&P Global Platts trade flow analytics software cFlow and shipping sources.

The exports had dropped to 1.06 million b/d in November 2018, when the US first imposed the sanctions, but have rebounded in recent months with the US' issuance of waivers to allow India, China, Turkey, Greece, Italy, Japan, South Korea and Taiwan to continue their purchases of Iranian oil.

The decision to end the waivers could remove 1.33 million b/d of Iranian exports, according to Platts' estimates.

Front-month crude futures rallied as a result of the announcement, with the June ICE Brent crude Futures recording a weekly increase of 4.12% as of Wednesday.

Analysts however see this rally as a short term price reaction and have kept their forecasts for Brent Futures unchanged for the rest of the year.

Goldman Sachs in a note reiterated their Brent price trading range of $70-75/bbl for Q2 2019.

"Given our confidence in better supplied markets next year and the still high uncertainties around the aggregate OPEC+ production path in coming months, we are, however, not changing this forecast for now, " they said in a note.

Saudi Arabia's Energy Minister Khalid al-Falih, speaking at an energy conference at Riyadh on Wednesday said that the kingdom is not in a hurry to increase its oil production, even with the looming expiry of Iran sanctions waivers next week as he views the market to be "well supplied."

Saudi crude production in May would have "very little variation" from the last few months, he added. June export volumes will be allocated in early May.

Commerzbank also kept its forecast for Brent prices unchanged for the rest of the year at $70/b.

"The tight supply and risk of further tightening due to the US sanctions against Iran and Venezuela suggest that the Brent price will continue to climb towards $80/b in the short term, " Commerzbank analysts said in a note.

While Saudi Arabia could offset these outages at least partially, if it reverses some of its production cuts, completely compensating for the supply outages resulting from US sanctions, could instead pose a threat to OPEC's cohesion and to the supply cut agreement, analysts from Commerzbank noted.

"We still envisage a Brent price of $70 per barrel at year's end, " they added.

BRENT/DUBAI SPREAD TO TIGHTEN

The loss of Iranian barrels however is expected to widen the front month spread between the lighter Brent crude and heavier Dubai crude, analysts said.

The US Administrations' announcement to end the waivers is likely to support Dubai crude prices relative to Brent prices given the quality mismatch between the Iranian barrels and the lighter basket of compensating barrels, according to Goldman Sachs

"Based on this expected slate shift, we now expect a tighter July 2019 Brent-Dubai spread of $0.95/b versus current forwards of $1.50/b (with any upside to shale production further supporting Dubai), " the analysts said.

--Avantika Ramesh, avantika.ramesh@spglobal.com

--Edited by Liz Thang, elizabeth.thang@spglobal.com