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APPEC: Iranian oil exports could halve due to US sanctions: Trafigura

Singapore — Iran's crude oil exports could drop as low as 1 million-1.3 million b/d after US sanctions take effect on November 5 but are unlikely to drop to zero, Ben Luckock, co-head of oil trading at Trafigura, said Monday.

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The US reimposed nuclear-related sanctions on Iran on August 6 but has set a deadline of November 5 for restrictions on Iran's energy sector, including petroleum-related transactions, which could severely impair the country's crude and condensate exports.

The Iranians were producing between 2.5 million b/d to 2.7 million b/d and when the sanctions were announced people expected exports to fall by nearly 300,000 b/d to 700,000 b/d, Luckock said on the sidelines of the APPEC oil conference in Singapore.

"I think the consensus has moved and it's going to be well beyond 1 million (b/d) that's cut, and maybe 1.5 million b/d," he said, adding that somewhere between 1 million b/d to 1.3 million b/d is a reasonable guess.

Iran's exports of crude oil and condensate increased sharply in 2016 and averaged more than 2.5 million b/d in 2017, as sanctions were lifted under the Joint Comprehensive Plan of Action, with China, India, Turkey and South Korea emerging as the largest buyers, according to the US Energy Information Administration.

"I think you're likely to see the Chinese continuing to take some. You'll see some of the traditional customers cut but not to zero," Luckock said. He said Iran's oil exports but will be significantly lesser than it was, and probably lower than most people expected when the sanctions were announced.

SANCTIONS COMPLIANCE

The key difference between the renewed US sanctions on Iran and the previous sanctions is that the remaining signatories of the JCPOA do not support the withdrawal of the US from the agreement.

Iran has asked the European Union for guarantees to protect it and the EU has also taken legislative action in the form of a "blocking statute" to mitigate the impact on the interests of EU companies doing business in Iran.

This has caused confusion over how severely the sanctions will impact Iran's crude exports and how closely will oil and commodity trading companies implement the sanctions as most of them also operate businesses in the US.

"Everybody is going to be compliant. It goes without saying," Luckock said. He said this time around the US is incredibly serious about Iran and all the key companies will be 100% compliant with the sanctions, referring to Royal Dutch Shell, BP, Vitol and Trafigura panelists seated with him at the conference.

"It does present an opportunity in terms of ... volatility in the market and as traders that is kind of what we are interested in," Luckock added. Commodity trading houses thrive on volatility as it gives them opportunities to take positions on the movement of prices and absorb market risks on behalf of other participants.

Luckock said difficult conversations of where flat prices are going and what's going on with oil market differentials are partly because of the sanctions.

"When you see Mr Trump tweet about OPEC and so on, part of what's going on is we've got a set of US policies that are increasing the volatility and arguably increasing the price," he added.

-- Eric Yep , newsdesk@spglobal.com

-- Edited by Daniel Lalor, newsdesk@spglobal.com