Iran could dump VLCCs on the market

Oct 25 2013

Much to everyone’s surprise, Iran has offered an olive branch to the West following the election of Hassan Rouhani in June.

While we are still a long way from any resolution on the nuclear issue, at least both sides in the dispute are now engaging in talks, albeit at a very preliminary level, Gibson said in its weekly report, trying to analyse the situation. 

Of course, a peaceful settlement would be welcomed by all, following many years of threats and uncertainty which has impacted on every nation at some level.

We can all speculate on what will happen should Iran be welcomed back into the international family and at what speed events could unfold. What will happen to the oil price? Gibson asked.

With Middle East tension lifted, the price could fall rapidly. OPEC, in the past has stepped in to implement production control to achieve oil prices that are perceived to be fair to all.

Cheaper oil will benefit everyone with the exception of the producers, who will be fighting to maintain the value of their barrels and of course market share.

China and India would particularly welcome cheaper oil. However, according to some sources, the US needs to see the oil price stay above the $90 barrel level to make exploitation of shale oil a viable proposition.

OPEC will obviously have a prominent role to play in what happens to global oil production and trade, but which OPEC producers will give up their market share to accommodate the return of almost 1 mill barrels per day of Iranian crude sales?

This brings us to the question of what impact these developments could have on tanker industry.

Gibson said that since sanctions were implemented, Iranian production has fallen by 0.8 mill barrels per day. The issue is how quickly Iran would be able to ramp up production back to pre-sanction levels as the nation’s oil infrastructure has suffered as a result of the embargo.

The speed of return will determine how the newly released NITC fleet (37 VLCCs, nine Suezmaxes and five Aframaxes) will operate on the international tanker market. It is more likely that the speed of oil production increases will initially be slow, in which case the national carrier’s tonnage could re-enter the tanker market as relets – again swelling the fleet.

Although many of the NITC units may be in need of urgent maintenance (in many cases drydocking) in order to attain approvals, this would only temporarily delay their return to the international market and they would be back in greater numbers than pre-sanctions, the broker warned.

In terms of trade, one aspect would be the impact on the West African export market, particularly Nigeria, should Iranian oil once again be taken in significant quantities by the European market.

In this summary, we have only touched the surface of what could happen should Iran be welcomed back, but the possible influx of NITC VLCCs could have a catastrophic impact on the crude tanker market, Gibson concluded.


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