Syed Rashid Husain
DRIVEN by weak fundamentals, bleak Chinese data and Fed’s plan to slow its bond-purchase program by the end of the year, commodity markets suffered their biggest drop in a year and half – on June 20 – dubbed “Black Thursday” by Commerzbank. And oil was no different. US crude sank 3 percent on the day, with benchmark oil prices projected to decline further during the course of the coming week(s).
But then geopolitics came handy, reversing the trend. Fear premium began to swell. Already the ongoing conflicts in Syria and Libya were weighing heavily on market sentiments. The echo of change in Egypt contributed to further volatility. Fears that the uprising in Egypt may hurt oil supplies through the Suez Canal and the possibility that it could spill over to other countries in the energy-rich region helped add premium into oil futures, analysts underlined.
Consequently, the price of US light crude rose, last week, above $100 a barrel for the first time since September 2012. Brent also shot up by 1 percent to $105.20 a barrel. However, the fact remained that with slackening global economic growth and the consequent slowdown in crude demand, the jump in prices was likely to be temporary, most agreed.
“There is more than enough crude supply and there is relatively weak demand,” said Tony Regan, principal consultant at oil and gas consultancy Tri-Zen. David Lennox, a resources analyst with Fat Prophets, added that given the global demand and supply situation, “the price should not be at the current levels.”
Interestingly, the continuing weak market fundamentals are encouraging the US lawmakers to embark on a campaign to deal a deeper blow to Iran’s diminishing oil exports, with the ultimate goal of a near total cutoff. Tehran produced roughly 3.5 million bpd and exported about 2.5 million bpd in early 2011, before the US and Europe clamped the sanctions regimen, rather aggressively.
Tightening the screws on Tehran further, the Obama administration is now attempting to reduce Iran’s oil exports even further, to less than 500,000 barrels per day. New US Energy Secretary, Ernest Moniz said last week that he believed the oil market could cope with any further reduction of Iran’s oil exports. He underlined that Iranian exports were now not a “dominant player in the market,” and was offset by increased production in the United States and in Iraq as well as substantial reserve capacity in some of the major OPEC producers such as Saudi Arabia.
But confusion continues to prevail on the real impact of the sanctions on Iran exports. And this is emerging as an interesting jigsaw puzzle. Some reports continue to insist that as a result of the sanctions, Iranian oil production is heading to its lowest in 25 years.
However, the Paris-based International Energy Agency, the OECD energy watchdog, appears to be differing. Tehran exported 66 percent more crude oil in May than in April, with China increasing its purchases from the Islamic Republic, the IEA Monthly Oil Report said. Giving out details, the report said that China imported 715,000 barrels a day of Iranian crude in May, which is almost double the 370,000 barrels it imported in April. The IEA also said that Iran’s crude output rose by 30,000 barrels a day in May to 2.68 million barrels a day.
Data from China’s General Administration of Customs while confirming the trend put the import figure a bit low. While confirming the rise, it did concede that the Chinese import went up by almost 50 percent in May – from April. Iran sold 2.36 million tons of crude to China in May, equivalent to about 555,557 bpd – some 160,000 bpd less imports from Iran than the IEA numbers.
The figures show a 49.5 percent rise from the 371,500 bpd of Iranian crude that China imported in April. The May level rose 6.4 percent from 521,936 bpd a year earlier. The increase in China’s imports of Iranian crude came just before the United States - albeit reluctantly - renewed the waiver to China and some other countries on US sanctions aimed at cutting Iran’s oil exports and hence revenues.
A recent report showed that Japan’s crude oil imports from Iran also more than doubled in May compared to the corresponding period last year. The Japanese Ministry of Finance said Tokyo imported 1.09 million kiloliters, equivalent to about 222,000 barrels per day (bpd), of Iranian oil in May. The figure was up from about 530,000 kiloliters in April and 523,000 kiloliters in May 2012, Bloomberg reported.
Earlier, on May 31, Iranian Oil Minister Rostam Qasemi said that the US-engineered sanctions had not impacted the Islamic Republic’s crude oil production. He also stated that the country’s crude oil exports had decreased slightly, but the small amount was being used for the production of oil products for export.
India and Korea, on the other hand seem giving in to the US pressure. India has cut oil imports from Iran by more than 40 percent in the first five months of the year, pushing Iran down four places to seventh among its crude suppliers. India’s imports of Iranian oil for May dropped 12.2 percent from a year ago to 213,500 bpd, tanker arrival data compiled by Reuters from trade sources showed.
In the meantime, Iran’s share of India’s total oil imports dropped to 5.5 percent over the January to May period, from more than 10 percent in the same period last year. Till 2012 Iran was India’s second biggest crude oil supplier, catering to about 12 percent of the country’s needs. Amrita Sen, chief oil analyst at consultants Energy Aspect, said “Iran dropped out from the top 10 countries supplying India with crude for the first time”.
The United States sees India’s reductions in imports of oil from Iran as an “important step” in bringing pressure on Tehran, Secretary of State John Kerry said in New Delhi. “We are appreciative that India has worked hard to reduce its dependency on Iranian oil and that has been an important step,” Kerry said at a press conference with Indian Foreign Minister Salman Khurshid in New Delhi. What a stark difference from the Nehruvian India.
South Korea also had cut its May oil imports from Iran by 8.3 percent from a year ago. It cut its Iranian crude imports to 505,004 tons in May, preliminary data from Korea Customs Service showed, down from 550,714 tons in the same month last year.
Reuters also confirmed South Korea’s Iranian oil imports from December through May decreasing by 20.2 percent to 150,239 bpd year on year.
Weak fundamentals have definitely aided Washington in tightening screws on Tehran. But while some gave in, there are countries still resisting the US pressure and continuing to buy from Iran – and in bulk. The chessboard is spread out – and moves continue to be made – in a slow, cold and calculated way. Crude politics continues to reign!