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Iran starts to store barrels at sea as sanctions bite

London — Iran is already resorting to storing unsold barrels on tankers as its crude oil exports are expected to slump to 1.4 million-1.5 million b/d in September ahead of the US sanctions, according to trading sources and tanker data.

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Shipping data showed that at least eight VLCCs and one Suezmax totaling around 15 million-17 million barrels of crude and condensate have been building off Iran's main crude oil terminals - Kharg Island and Soroosh and also off the coast of the United Arab Emirates.

The VLCC Navarz carrying 2 million barrels of crude has been anchored off Kharg Island for over 24 days, according to S&P Global Platts trade flow software cFlow.

cFlow data identified the other VLCCs, which can hold up to 2 million barrels of crude and condensate each, as the Sea Cliff, which has been at anchor since September 6, Happiness I (August 29), MT Hedy (September 1), Halti (September 4), Dover (September 10) and Destiny (September 10).

Two tankers, the Suezmax Salina and the VLCC Felicity, have been holding condensate off Jebel Ali since August 12 and August 7 respectively, cFlow data showed.

All these tankers are owned by the state-run National Iranian Tanker Company, which operated the world's second largest fleet of VLCCs.

With some European countries expected to further halt the import of Iranian crude and many Asian countries also reducing their crude oil purchases from the Islamic Republic, state-owned NIOC is resorting to storing unsold barrels on tankers.

Representatives at both NIOC and NITC were unavailable for comment.

FLOATING STORAGE TO GROW FURTHER

Shipping and trading sources also said Iran may have underestimated how much exports would be affected even before the sanctions came into place.

They added that the OPEC member had also started building inland storage due to the fall in exports but with exports expected to drop further in the coming months, floating storage is already beginning to build.

"I've been hearing that older NITC vessels are storing [barrels already], also that Chinese tonnage is slowly disengaging from loading Kharg Island," said a shipbroker.

"Tonnage was locked into Kharg-China voyages, meaning that they may infringe on the rest of the spot market in time, but NITC have been storing condensate and crude for quite some time so I don't know whether these are additional storage units or not." Crude oil exports in August fell by almost 250,000-300,000 b/d from July to around 1.7 million b/d, according to cFlow data, in the first concrete sign that the looming re-imposition of US sanctions in November is having an impact on buyers' behavior.

Analysts expect the US sanctions to eventually shut in around 1 million b/d or more of Iranian exports.

Platts Analytics forecasts 1.4 million b/d of Iranian oil exports to leave the market by November, compared with April levels.

Iranian production has already begun to suffer in advance of the sanctions, falling to 3.6 million b/d in August, the lowest in more than two years, according to the recent Platts OPEC survey.

-- Eklavya Gupte with Peter Farrell , newsdesk@spglobal.com

-- Edited by Maurice Geller, newsdesk@spglobal.com