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Japan may halt Iranian oil loadings by March even after resumption

Highlights

Uncertainty on next round of sanction waivers

Japan shipping insurance expiry clouds import picture

Refiners preparing for all eventualities

Tokyo — Japanese refiners are considering resuming Iranian oil imports from January following Washington's recent sanctions waiver, but the window to load cargoes could halt in two months amid uncertainty about whether the waiver would be extended beyond the 180-day period, sources familiar with the matter told S&P Global Platts.

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Without a guarantee on extension, Japanese companies may be forced to finish loading Iranian oil by the end of February or early March to get enough time to clear all Iran-related oil transactions by the end of the 180-day period that began on November 5, sources said.

The ideal target date to clear all Iranian oil transactions would be end April, which means that some Japanese companies "may be able to load only in January-February," a Japanese industry source familiar with Iranian oil shipping said.

In addition, Japanese refiners and shipping companies, which use government-backed shipping insurance for protection and indemnity cover for Iranian oil imports, will avoid a voyage around end March, when the insurance expires, sources said.

Following the US' issuance of the sanctions waiver, the Japanese government shipping insurance is now ready to be used for Iranian oil shipping, a government source told Platts. Tokyo also intends to renew the government shipping insurance beyond April 1 after parliamentary approval, the source added.

Japanese companies involved with Iranian oil imports, including in refining, banking, shipping and insurance sectors, are still waiting for a detailed explanation from the government on the US sanctions waiver granted earlier this month before resuming their imports, sources said.

At least one Japanese refiner intends to soon begin talks with the National Iranian Oil Company, a refinery source said, adding that the refiner had already initiated talks with banks to resume oil imports, a refinery source said.

LIKELY NEED FOR ALTERNATIVE SUPPLY

A number of Japanese industry sources said that local refiners have not been told how much Iranian oil they can import under the US sanctions waivers as yet, creating a need to continue seeking alternative supplies.

But a source with a Japanese refiner said that the company is now looking to load a maximum one to two cargoes per month of around 500,000-1 million barrels Iranian crude oil over January-February.

"We will be looking for spot cargoes [from other oil producers] in the event this happens," he said.

A source with another Japanese refiner said that the company is currently preparing an import plan for both with or without Iranian barrels for its January loading program amid uncertainty over availability of banks, ships and insurance to resume its imports.

As a result of the expected relief in sanctions, the Middle East sour crude market has seen a softening in structure, and spot differentials for January loading barrels have flipped into discounts this month.

The Dubai M1/M3 structure has slid 81 cents/b from $1.14/b over October to 33 cents/b so far in November, an indication of supply overshadowing existing demand.

Still, even with sanction waivers, buyers are not expecting to get the full extent of their existing contractual barrels with Iran, Asian crude traders said. This may provide a floor for prices in the Middle East sour crude market.

Japan's Minister of Economy Trade and Industry Hiroshige Seko said on November 6 that Japanese refiners would start preparing for the resumption of Iranian crude oil imports following the US announcement that Japan was among eight countries receiving its sanctions waiver.

But he declined to comment on details of the US sanctions waiver as well as on the outlook of Japanese imports of Iranian oil.

Japan was among eight countries which have received a waiver for US sanctions that took effect on November 5 on Iranian oil imports until May, when they will be expected to cut their purchases significantly.

Japan 's last Iranian oil cargo arrived in early October as local refiners and banks intended to clear all of their oil-related transactions before the US sanctions were enforced. Before the suspension, Japan imported an average of 164,900 b/d of Iranian oil, which accounted for 5% of its total imports over January-September, according to METI data.

-- Takeo Kumagai, takeo.kumagai@spglobal.com

-- Eesha Muneeb, eesha.muneeb@spglobal.com

-- Edited by Mriganka Jaipuriyar, newsdesk@spglobal.com