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Saudi Arabia Just Made An Unconventional Move To Replace Iran’s Condensate Sales

Offshore horizon

Amid a growing number of buyers fleeing Iranian crude oil and condensate purchases ahead of the U.S. sanctions, Iran’s fellow OPEC member and regional arch foe Saudi Arabia is offering on the spot market a rarely exported ultra-light oil grade, seeking to replace some of Iran’s condensate sales, Bloomberg reported on Wednesday.

Saudi Aramco’s trading unit is reportedly offering on the market Khuff condensate—a rare move by the Saudis who usually use this ultra-light oil for domestic refining. To free up Khuff volumes, Saudi Arabia is directing more of its Arab Extra Light to splitters for turning it into raw materials for fuel and petrochemicals, according to Bloomberg.

Not only is Khuff expected to be an alternative to Iran’s condensate sales, which have already started to drop with major buyers Japan and South Korea cutting off Iran oil trade, at least until they receive clarity on waivers from the U.S. The Khuff condensate is also more expensive than Arab Extra Light, so Saudi Arabia would get more income from Khuff sales. According to a Bloomberg survey of three traders, Khuff is valued $2 a barrel over the October official selling price (OSP) for Arab Extra Light.

Iran’s crude oil and condensate sales fell in August to below 2 million bpd—the lowest level in more than a year, according to tanker tracking data compiled by Bloomberg.

In September, the trend of reduced Iranian oil exports has continued, and analysts expect further cuts from some of Iran’s oil customers.

Related: $100 Oil Is A Distinct Possibility

Two key buyers of Iran’s condensate—Japan and South Korea—have already halted imports from Iran: South Korea has not bought any Iranian oil since June, while Japanese refiners have stopped buying Iranian crude and condensate ahead of the November 4 deadline set by Washington.

Asian buyers have started to look for alternative supplies from the United States and Norway, according to Bloomberg.

U.S. producers of ultra-light condensate have the opportunity to gain a piece of the tightening Asian condensate market, which is expected to further tighten with the return of the U.S. sanctions on Iran’s oil, according to Morningstar Commodities Research.

You can find Saudi crude oil prices (and 150+ other crude oil blends) on our oil prices page

By Tsvetana Paraskova for Oilprice.com

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