Asia Concerned About Russia’s Demands

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  • ICE front-month Brent rose $21.02 to $139.13/b, and NYMEX front-month crude climbed $14.82 to $130.50/b.
  • Iran’s imminent return NIOC has been offering fewer cargoes to Chinese trading houses, Chinese trading sources, who deal with Iranian cargoes, said Feb. 28.
  • For now, the US has said that it wants to avoid hitting Russia’s exports of oil and gas, but it is keeping targeted energy sanctions ‘on the table’ if the situation worsens.

In the midst of the Russia-Ukraine confrontation, Asian crude importers consider an early resumption of Iranian supplies as the only option to bring down surging oil prices, avert demand destruction, and keep the fragile regional economic recovery from the epidemic intact as reported by S&P Global.

International crude markets 

The market, however, is unduly worried about one step forward and two steps backwards oil rallied sharply at the open late March 6 on news that Joe Biden’s administration is discussing a potential ban on Russian oil imports with its European allies.

ICE front-month Brent rose $21.02 to $139.13/b, and NYMEX front-month crude climbed $14.82 to $130.50/b.

A State Department official told S&P Global that it hopes Russia will adopt a more productive stance toward the negotiations since Russia shares a common interest in ensuring Iran never acquires a nuclear weapon.

“By most estimates, Iran will be able to quickly ramp up its production capability, and indeed has been planning for its return to the international crude markets for some time now,” said Rajat Kapoor, managing director for oil, gas and chemicals at Synergy Consulting, Inc.

Increasing current production

National Iranian Oil Company could pump an additional 700,000 b/d over the next few months to increase its current production of 2.5 million b/d to nearly 3.2 million b/d in three months, according to Kapoor.

“An additional 1 million b/d of Iranian crude flowing into the market has the ability to pare off between $5/b to $8/b from the cost of each barrel of oil, thereby providing much-needed comfort to today’s inflated prices,” Kapoor said.

Energy costs as a percentage of GDP have increased to 8%, the highest since the global financial crisis in 2008, Bernstein Research said.

Oil prices surging above $110/b Brent has pushed up oil costs to 4.5% of GDP that historically has been a prelude to recession and demand destruction.

Iran’s imminent return

NIOC has been offering fewer cargoes to Chinese trading houses, Chinese trading sources, who deal with Iranian cargoes, said Feb. 28.

China currently imports Iranian barrels as crude grades from other origins, such as Malaysia Blend, Oman and Upper Zakum.

Some refiners in India, who are traditionally big buyers of Iran oil, also said that the lifting of sanctions on Iran could change the market dynamics at a time when prices are soaring, and the current production level is unable to meet the post-COVID-19 pent-up demand.

Asia imported about 1.6 million b/d of crude from Russia in 2021, accounting for less than 5% of regional imports, according to S&P Global.

The majority of Russia’s crude supplies are bought by China, with half of the volumes transported via pipelines.

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Source: S&P Global

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