Iran Floats Surplus Oil as Demand Falls Prior to U.S. Sanctions

The buildup of Iranian oil supplies underscores the pressure that Iran is facing as Washington aims to bring Iranian oil exports down to zero to force Tehran to renegotiate its nuclear deal

Iran's Oil Minister Bijan Namdar Zangeneh is seen during a parliament session in the capital Tehran on August 26, 2018
AFP

Two tankers carrying Iranian condensate, a type of ultralight oil, have been floating off the United Arab Emirates for about a month as demand for the oil fell ahead of U.S. sanctions.

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The tankers, carrying about 2.4 million barrels of South Pars condensate combined, have been floating off the U.A.E. since August, after South Korea halted imports from Iran while China’s demand dropped during the summer, according to several industry sources and shipping data.

The buildup of Iranian oil supplies underscores the pressure that Iran is facing as Washington aims to bring Iranian oil exports down to zero to force Tehran to renegotiate its nuclear deal.

The large crude carrier Felicity loaded condensate at Iran’s Assaluyeh port in early August and then set sail for Jebel Ali in the U.A.E., Thomson Reuters Eikon shipping and trade flow data showed. It arrived at the ship-to-ship transfer area off Dubai on August 7 and has been anchored there ever since. Similarly, the large tanker Salina loaded oil at Assaluyeh and has been circling in the same area off Dubai since August 17, according to the data.

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Oil processors in South Korea, Iran’s top customer for South Pars condensate, halted Iranian oil deliveries in July as banks, insurance and shipping companies wound down business related to Iran before U.S. sanctions against the country's petroleum sector kick in on November 4.

China typically cuts South Pars condensate imports sharply during the summer months between the second and third quarter because of its foul smell, the sources said. The condensate contains high levels of a sulfurous compound known as mercaptans that require additional processing by refiners to remove.

“Taking a cargo to China now when China may not want its arrival dates means it may lose a cargo to India,” a U.S.-based trader said. “So the cargoes will stay in place until they need to leave on an agreed delivery period.”

Emirates National Oil Company, another buyer of Iranian condensate, has been asked by the U.A.E. government to replace Iranian supply with imports from other countries, one of the sources said.

The U.A.E. authorities are cracking down on oil and financial activities linked to Iran before the sanctions take effect.

The National Iranian Oil Company and Emirates National Oil Company did not respond to requests for comment.

The number of ships loaded with Iranian oil and anchored off the loading port of Kharg Island and the Souroush oil field has also risen as Iran’s pool of buyers shrank, the data showed. Three supertankers capable of carrying two million barrels have floated for 10 days or more, while another four have been there for less than a week.

Iran’s August crude and condensate exports fell to 67.7 million barrels, the lowest since April 2017, according to data from Thomson Reuters Oil Research and Forecast.