European Refiners Gearing Up for Return of Iranian Oil

Photo: Shutterstock/Nightman1965
Photo: Shutterstock/Nightman1965

ReutersBy Ron Bousso

LONDON, July 14 (Reuters) – Mediterranean refiners are gearing up to welcome the return of Iranian crude oil to the market which could push prices lower and boost profits following the easing of Western sanctions under a landmark nuclear deal.

Iran’s crude exports were a regular fixture for European refineries before Western sanctions were imposed on the key OPEC producer in 2012 over its nuclear programme, halving its exports to just over 1 million barrels per day.

“Iran has been a long standing valued partner … We are looking forward to Iran coming back to the market,” said a spokesman for Greece’s biggest refiner Hellenic Petroleum , stressing that they will not buy any crude before sanctions are officially lifted.

“The volumes of crude oil that will re-enter the Mediterranean market will ease prices and give more options for refiners in the region,” he added.

Though there were no details on how sanctions on oil will be eased, Iranian officials indicated they would try to maximise crude exports to Europe and restore a market share of over 40 percent there.

Analysts expect the deal could see Iran increase its oil exports by up to 60 percent within a year.

Additional volumes of crude would only pile pressure on a market already facing a large oversupply. For refiners, however, cheaper feedstock means higher profit.

Iranian crude accounted for around one quarter of Hellenic’s crude oil intake before 2012, and just like many Mediterranean refiners, it is geared up for Iranian crude.

European oil buyers, including Italy’s Eni and Saras have held talks with National Iranian Oil Company (NIOC) officials in Europe and Tehran over the past year in anticipation of sanctions being eased.

A spokeswoman for Spain’s Compania Espanola de Petroleos (CEPSA) said “Iranian crude has largely been part of our supply and we maintained a long commercial relationship with them.”

“If sanctions are lifted, as it seems, Iranian crudes will definitively be again another alternative to consider,” CEPSA told Reuters in a statement.

A spokesman for Saras said the independent refiner “would be delighted if Iranian oil comes back to the market, as its quality is very interesting for complex and flexible refineries like ours”.

Asian buyers, notably China, India and Japan, have continued to buy limited volumes of Iranian crude in recent years.

“Two to three months from now, you will probably see some Iranian crude coming to Europe and Asia,” said Eshan Ul-Haq, senior market consultant with KBC, which expects Iran’s export to rise over that period by 300-400,000 bpd, of which 150,000 bpd is expected to reach Europe.

“It would mean cheaper crude for Mediterranean refineries, especially smaller countries that have been impacted by economic problems – like Greece,” Ul-Haq said.

Royal Dutch Shell, whose officials recently held talks in Tehran on future cooperation and the repayment of the Anglo-Dutch company’s $2 billion debt said on Tuesday it was interested in doing business in Iran.

“Strictly within the boundaries of the law, we are interested in exploring the role Shell can play in developing Iran’s energy potential,” a spokeswoman said.

The table below shows the Iranian crude oil imported by companies in Europe, including Turkey, prior to the 2012 European oil embargo.

Figures in ‘000s of bpd are based on industry and Reuters estimates:

Customer Country Volume ’11

Tupras Turkey 200
Total France 100
Shell UK/NL 100
Hellenic Greece 80
Cepsa Spain 70
Motor Oil Greece 60
Repsol Spain 30
ERG Italy 30
Iplom Italy 30
ENI Italy 20
Saras Italy 20
Total 740

(Additional reporting by Libby George, editing by David Evans)

(c) Copyright Thomson Reuters 2015.