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Iranian fuel oil exports wane
Iranian fuel oil exports at the start of this year continued a downward trajectory that began in the run-up to the renewal of US sanctions from November 2018. Reduced availability of the country’s high sulphur fuel oil (HSFO) subsequently contributed to tighter supply in Mideast and Asia-Pacific bunkering hubs in recent months and could continue to lend further support going forward.
Exports take a hit
Following the 2016 agreement of the international nuclear deal (JCPOA) and the relaxation of sanctions, Iran exported on average around 800,000 mt of fuel oil per month in the subsequent period, which primarily fed the Fujairah and Singapore zones, as well as heading to countries across Asia-Pacific.
Iran’s fuel oil exports into 2018 remained similar up until the start of the fourth quarter. September was the final strong month, with close to an estimated 900,000 mt being shipped. The following month, export numbers slipped to below 600,000 mt.
In November 2018 , the US government reinstated all sanctions, reflected in an abrupt drop in fuel oil exports around the same time. Expectations of stricter enforcement of sanctions this time around saw companies previously holding term contracts for Iranian fuel oil, as well as other suppliers, withdraw from the activity.
As a result, November and December observed flows both averaged an estimated 300,000-600,000 mt per month. January managed to hold at similar levels, although February volumes were more sparse, according to preliminary indications.
Iranian swing fuel oil barrels
Iranian HSFO is an important swing barrel for the Mideast Gulf and Asia-Pacific fuel market due to its favourable qualities; it has very low density and relatively low viscosity. This makes it a prize stream for blending, for those who are able to trade it.
Over the past few years, as refineries have invested, upgraded and thus improved their crude conversion, the global pool of HSFO has worsened in quality. Streams have gradually increased in density, viscosity and metals content.
In particular, the Russian M100 grade—perhaps seen as the primary low density cracked stream for blending—has become reportedly harder to work. Other streams, from the ARA region to the US Gulf, have disappeared completely. In a tough blending environment with low margins, the Iranian streams have good intrinsic value.
The Abadan cracked fuel oil has a maximum density of .970d and viscosity of 280CST—these two parameters are below the .991d and 380CST of marine bunkers which allow them to be blended with much cheaper high-density slurries. The low viscosity of the Iranian stream means it can cut down very high viscosity streams to the marine fuel maximum specification.
Iran’s second stream, from Bandar Abbas, is closer to the marine bunker specification with density of .990d and 380CST, with flows previously moving primarily to Fujairah.
The majority of Iranian fuel oil exports are shipped on Aframax tankers. Along with medium-range (MR) size tankers, both vessel classes account for around three quarters of the type of freight used to export the product from Iran.
Iranian Fuel Oil is mostly lifted on Aframax freight
Though the Iranian streams cannot be traded by a sizeable portion of the market, their absence will certainly help premium strength on the front of the market over time, particularly in Asia, as demand will draw more heavily on other streams instead.
The fall in Iranian fuel oil exports follows a similar trend to that of the country’s crude and condensate exports, which after hitting an annual high in the second quarter in the run up to the decision to renew sanctions, began to gradually slide from thereafter, down to just under the 2mn b/d mark by October.
Observed crude and condensate loadings in the fourth quarter were closer to 1mn b/d, but rose to almost 1.2-1.3mn b/d in January, before dipping again in last month. Volumes have headed mainly to Asia-Pacific, as European customers, aside from Turkey, shunned volumes.
As with fuel oil, crude shipments also look unlikely to ramp up again in the near future, especially with the set of recent waivers granted to a handful of Iranian crude buyers due to run out in May. For both medium sour crude streams, and HSFO, availability from this source in coming months looks bleak.