While a number of analysts remain skeptical whether the US will actually reimpose nuclear-related sanctions against Iran -- and if the international community would follow suit -- Asian buyers of Iranian oil have started looking into contingency supply plans for 2018 term imports.
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Some told S&P Global Platts they are considering trimming their term imports from Iran so as to be prepared in the event that re-imposed US sanctions severely curtail availability of Iranian crude and condensate.
A North Asian refiner said requesting extra force majeure clauses in term contracts with the National Iranian Oil Company, which had been the norm during sanctions, could be "one of the top issues" in 2018.
Some Iranian condensate buyers in the region are also mulling increased spot procurements to maintain flexibility while trimming term commitments, market sources said.
"I can't see any drastic supply disruptions next year ... but such uncertainties could be used as a good bargaining tool for lower prices on 2018 term deals," said a condensate trader at a South Korean refining and petrochemicals company. "I think many buyers would demand a risk discount." When sanctions were in place on Iran from 2012 to early 2016, the US had issued waivers to six oil importing countries -- China, India, Japan, South Korea, Taiwan and Turkey -- allowing them to continue importing Iranian oil at a reduced level.
The waivers had to be renewed by the US every 180 days, and the uncertainty of their renewal prompted some buyers to seek more flexibility in their supply contracts, instead of locking themselves into term deals.
US President Donald Trump, a fierce critic of the Iran nuclear deal which suspended sanctions on the country's oil sector in exchange for nuclear program concessions, is reportedly strongly considering declaring that Iran is not in compliance with the pact. He is tentatively scheduled to deliver a speech on Iran next week, according to reports.
Should he declare Iran in noncompliance, that would give the US Congress an opening to reimpose sanctions.
Such a move is opposed by the other signatories to the deal, including the UK, France, Germany, Russia, China and the EU, who have indicated that they may not follow the US' lead in withdrawing from the agreement.
Iranian oil exports had been halved to about 1 million b/d while sanctions were in place, but since the nuclear deal's implementation in January 2016, Iran has boosted those exports to about 2.2 million b/d. Iran produced 3.83 million b/d, according to the latest Platts OPEC survey released Friday.
Analysts said the oil market today, fueled by growing US oil exports and ample availability of other crude grades, would likely not see a similar stark impact if sanctions were reimposed by the US.
But they added that for certain refineries configured to handle Iranian crude and condensate, there may be limited alternatives.
"In the event sanctions are reimposed, South Korean refiners could face difficulties," said Yonghun Jung, adjunct professor in the energy systems department at South Korea's Ajou University, who was formerly a counselor on energy for South Korea's ministry of trade, industry and energy.
Iran's limited crude and condensate exports during sanctions had previously boosted demand in Asia for rival Qatari ultra-light crude, including deodorized field condensate and low sulfur condensate.
DFC in particular, had its premium over Iranian South Pars condensate sustained at $3/b -- reaching as high as $5.40/b on March 6, 2013 -- throughout the Iranian sanctions period, according to Platts data.
DFC's premium over South Pars averaged $3.94/b in 2013, $3.02/b in 2014 and $2.97/b in 2015, compared to the $1.80/b average spread so far this year.
Asian traders said Qatari condensate suppliers could once again benefit in the event of the US snapback sanctions.
"The next best supply [source] would be Qatar obviously," said a crude trader at another South Korean refining company.
Qatar Petroleum for the Sale of Petroleum Products Co., or QPSPP, typically sells around four to seven 500,000-barrel cargoes of DFC and LSC in the spot market every month, on top of its regular monthly term supplies to various Asian customers.
In addition, industry sources said ample US crude and condensate supplies could also provide Asia some respite if the region's Iranian oil imports were to be limited.
WTI's sharp weakness against other global benchmarks including Dubai and Brent has been the biggest factor behind ample US-Asia trade flows so far this year, but any shortage of Iranian oil on the market could also drive Asian end-users to raise their interest in North American barrels.
"[Arbitrage economics] would still be the primary driver [of US-Asia trade flows going forward] ... but geopolitics could also play a role," Ryan Krogmeier, Chevron's vice president of crude supply and trading, said at the recent Platts Asia Pacific Petroleum Conference in Singapore.
Krogmeier further elaborated that any supply disruptions in Asia's main crude sourcing regions like the Middle East may boost Asian buyers' interest in North American light crude supplies like Eagle Ford condensate.
A number of South Korean buyers of Iranian condensate are already considering buying some US condensate cargoes, said a South Korean industry source familiar with the matter.
Wang Pei, a deputy general manager of the Research & Strategy Department at China's Unipec, said the US, with its abundant non-conventional resources, could become the next major crude supplier to Asia, displacing Middle East barrels.
"We don't have a plan to change our crude buying from Iran yet, but will gradually import more crude from the US to replace some of the uncompetitive Middle East crude," she told Platts.
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