Iran is expected to raise the April Official Selling Price (OSP) of its flagship light crude oil to Asia to 25 cents above the Saudi’s similarly graded Arab light. This is the highest premium since 2011 and is an increase of 30 cents over the previous month.
Iran will likely price its light crude at 50 cents a barrel below the average of Oman and Dubai quotes, whereas the OSP for Iran Heavy will likely be $2.60 a barrel below Oman and Dubai quotes.
But not all crudes are equal, and when it comes to Iran Heavy Grade, pricing will remain aggressively competitive. Heavy Grade is Iran’s main export grade, which must compete with Latin America, Iraq and Saudi Arabia—all of whom supply a similar grade.
When it comes to its light crude, though, the competitive price Iran has offered so far was for internal reasons and intended to reduce gasoline imports.
Many experts believed that Iran would offer large discounts to regain the market share it lost under the sanctions regime. However, Iran is using a calculative approach towards increasing its share and is looking to consolidate and increase exports to its existing partners such as China, South Korea, and India, in Asia.
Iran expects to increase exports to India to 460,000 bpd from the current 260,000 bpd. Similarly, it expects to further increase its exports to South Korea, which has already imported 203,165 bpd—its highest level since 2012.
Demand from Europe has been a little slow to pick up due to ship insurance and banking-related issues. Nevertheless, the first shipment to Europe landed in Southern Spain on 6 March 2016. Three more tankers--one bound for Romania, another to France and a third to the Mediterranean--are expected to reach their destinations soon.
BIMCO's chief shipping analyst, Peter Sand, said, "Former clients of Iran are the ones who are likely to return as buyers... Italy, Spain and Greece were the top EU importers in 2011."
The mid-March meeting between OPEC, Russia and other major producers offers a window of opportunity for Iran to increase production gradually, since the major nations have agreed to a production freeze. On top of that, Russia is planning to offer a different deal to Iran, which will allow it to ramp up its production to pre-sanction levels.
The lifting of sanctions couldn’t have come at a better time for Iran. It is benefitting from the strong bounce in oil, and it is unlikely to face huge competition, barring U.S. exports, if the production freeze is adhered to by the major oil producers.
Tehran has cause for celebration, indeed. This was clear when Iranian Oil Minister Bijan Zanganeh said: "We look forward to the beginning of co-operation between Opec and non-Opec countries and we support any measure that can stabilise the market and increase prices."
The world can take comfort from the fact that Iran has not flooded the market with cheap oil as previously envisaged by the experts. Capturing market share is one thing, but there are internal needs to consider as well.
By Rakesh Upadhyay for Oilprice.com
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