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Analysis: Iran's June oil exports up, but US sanctions start to worry key buyers

London — Iran's oil exports recovered in June as demand from its key customers in Asia increased with appetite for Iranian oil picking up this summer.

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But the path ahead for Iran looks hard as it faces the threat of significant losses to its oil exports as US sanctions are re-imposed later this year.

For now though, Iran is finding a way to survive even as key buyers start to look elsewhere for alternative crudes.

Total estimated export volumes on Aframaxes, Suezmaxes and VLCCs from Iranian ports in June rose 3% to 2.49 million b/d from 2.42 million b/d in May, according to data from S&P Global Platts trade flow software cFlow.

Crude exports actually fell month-on-month to around 2.20 million b/d, but were offset by a steady rise in condensate loadings which were boosted by increased demand from Japan and South Korea.

The rise was also explained by the offloading of some floating storage barrels as it prepares for a rough road ahead.

Flows to Europe, where almost a third of Iranian crude exports travel to, fell sharply as shipowners and companies are treading carefully for fear of falling foul of US sanctions.

Some analysts expect around 500,000 b/d to 1 million b/d of Iranian crude exports to be under threat once the sanctions snap back in early-November.

MARKET BATTLE

Exports to Asia surged to 1.85 million b/d in June from 1.70 million b/d in May, as demand from South Korea, Japan and Taiwan rose steadily.

China and India were again the two main customers of Iranian crude buying more than a half of Iran's total oil exports.

But exports to China and India fell marginally last month compared to May, although both remain at high levels.

The battle for Asia's market share is heating up in the Middle East, with Saudi Arabia, UAE and Iraq posting sharp growth in their crude exports.

All these countries are starting to woo some key customers of Iranian crude especially those in Japan, South Korea and India.

Some Asian oil importers are already stepping up efforts to diversify crude sources and Iranian oil payment mechanisms due to President Trump's decision to target Iran's oil sector.

One Japanese refiner is considering suspending Iranian oil imports as early as this summer while Indian refiners are also starting to tread carefully.

The issue of some governments asking the US for sanctions waivers to continue to buy Iranian crude remains murky.

Last week, a top US official said it aims to reduce Iranian oil exports as much and as quickly as possible to put maximum pressure on Tehran, but the State Department will work with some countries on a case-by-case basis to reduce their imports after sanctions return November 4.

Most of the Asian customers are continuing diplomatic efforts to win exemption from the US sanctions for now.

Some top Chinese oil officials have said the government will push for a system where purchases from Iran are insulated from the dollar-denominated system and payments are made through banks which qualify.

EXPORTS TO EUROPE FALL

Flows to Europe in June fell to 485,768 b/d, down 121,875 b/d from May as buying interest from Spain, Italy and Greece dried up.

Exports to Turkey and France were up last month, although flows in May were quite low.

European refiners are already finding it tough to transport Iranian crude due to concerns over shipping insurance, and have begun to import more medium sour crude from Russia, Iraq and Saudi Arabia.

Trading sources said there were still however a handful of European banks and shipping companies that were willining to engage with Iranian crude transactions.

The EU is continuing its discussions with Iran and national governments to find ways to ensure trade with Iran can continue despite the US plans to reinstate sanctions.

The EU has formally added the US sanctions to the EU's blocking statute, which is set to enter into force on August 5, as long as the European Parliament and national governments do not object before then.

It also set up a specific EU-Iran working group to look at oil-related issues, including revenue transfers, storage, and shipping, including access to tankers and ports.

-- Eklavya Gupte, eklavya.gupte@spglobal.com

-- Jack Jordan, jack.jordan@spglobal.com

-- Edited by Jeremy Lovell, jeremy.lovell@spglobal.com