Opec back in focus with clarity on Iran sanctions waiver

The US government on November 5 granted temporary waivers to eight countries, including top Asian consumers China, India, South Korea and Japan, to continue importing Iranian oil. These countries have been allowed to keep importing oil from Tehran in exchange for making cuts in their import volumes in the past six months and promising to further cuts in the next six months.
S&P Global Platts Analytics estimates China and India will both keep importing at least 300,000 barrels per day (bpd) of Iranian crude, compared with April-May volumes of 690,000bpd for India and 684,000bpd for China.
South Korea is expected to be allowed to import about 4 million barrels/month of Iranian oil, but will continue to diversify its crude and condensate supply. South Korea imported an average of 12.32 million barrels/month of crude and condensate from Iran in 2017 and an average 8.34 million barrels/month over the first half of 2018, according to data from state-run Korea National Oil Corp.
Iranian crude and condensate shipments in October averaged close to 1.92 million bpd, according to data from S&P Global Platts trade flow software cFlow. 
Overall, shipments have fallen by 800,000 bpd since April when exports averaged 2.7 million bpd, a month before the US withdrew from the Iran nuclear deal and said it would re-impose sanctions.
Looking forward, the path for Opec’s third-largest producer is only going to get tougher. Despite the waiver, S&P Global Platts Analytics expects the official snapback of sanctions to accelerate the import reductions to an average of 1.1 million bpd in November and to 850,000 bpd by the fourth quarter 2019.
A goal to keep oil prices in check was central to the US decision to grant waivers to the top importers of Iranian crude, US President Donald Trump said when announcing the waivers.
Concerns about a potential fourth-quarter supply shortage as a result of the reimposition of US sanctions on Iran were a key factor in Brent’s rise to $86.29 per barrel on October 3.
But even before the waivers were granted, crude oil prices had come off on the back of increased supply from Opec and key non-Opec suppliers, and concerns about the global economy next year and its potential impact on oil demand.
Brent futures were trading around $72 per barrel on November 7, off $14 per barrel from their October high.
Despite initial concerns over Opec’s ability to make up for sidelined Iranian oil and sliding output from Venezuela, the short-term supply picture has eased considerably.
The US Energy Information Administration on November 6 raised its US crude output forecast for 2019 by 300,000bpd and trimmed its global demand growth forecast next year by 100,000bpd.
US oil production is now projected to hit 12 million bpd by April and close out 2019 at 12.4 million bpd. EIA estimated October production averaged 11.45 million bpd, a staggering 1.75 million bpd increase in one year.
Saudi Energy Minister Khalid al-Falih said last month the kingdom was producing about 10.7 million bpd, near its record high and almost 700,000bpd more than it was producing in May. Russia, meanwhile, reported on October 31 that it hit an all-time high of 11.41 million bpd, up about 440,000 bpd from May.
This indicates that Opec and its 10 non-Opec partners have surpassed their stated aim of raising production by a combined 1 million bpd from May levels to keep the market well-supplied and offset expected declines from Iran and Venezuela.
After months of talking up their ability to boost crude supplies to the market, Opec and its partners now appear ready to reverse course and reinstate output cuts.
Opec recently warned that its analysts foresee a weak market in the first quarter of 2019, as seasonal demand wanes and many refineries undergo maintenance, which may prompt members to dial back their output.
Opec will be determined to smooth out any market imbalances at its December meeting.
But there are headwinds, key among them being shrinking spare capacity. With Saudi crude production rising to all-time highs in the fourth quarter, global spare capacity will be uncomfortably low by historical standards, so a major, unexpected supply outage could provide another jolt to oil markets.
Attention will focus on election-related insecurity in Libya and Nigeria, as well as the potential for proxy conflicts in Syria, Yemen or elsewhere to spill into oil production or transit areas.

Contributed by MRIGANKA JAIPURIYAR, associate editorial director, Asia, S&P Global Platts