Short-term, a tightening of the oil supply coming from Iran may provide the much needed support for oil prices.
Bloomberg reported on Monday that US sanctions against tankers transporting barrels from Tehran have disrupted Iranian crude exports into China.
This development occurs just days before Donald Trump, the US president-elect, takes office in the White House.
Trump will likely pursue a stricter enforcement of sanctions against Iranian crude oil supplies and could also introduce additional sanctions against Tehran.
The world’s biggest crude oil importer may be further restricted in its oil supply.
Sanctions against tankers
Bloomberg cited Vortexa data to show that some November cargoes are still undeliverable, after disruptions in several October shipments.
According to Vortexa, the US sanction list includes at least 191 Very Large Crude Carriers.
In a report, Bloomberg cited Emma Li, senior analyst at Vortexa, who said that recent US tanker restrictions have caused a decrease in Iranian vessels visiting Shandong port, because Chinese buyers are increasingly demanding cargoes be delivered by vessels not sanctioned.
These disruptions may pose new challenges for Chinese refiners who were granted additional import quotas. These refineries may not be in a position to use their entire quotas over the next few months.
China imports over a third (33%) of Iran’s crude oil.
What will Trump do to the Iranian oil supply system?
Iran’s oil production has increased in the past two years. Iran currently produces around 3.3-3.4 millions barrels of crude oil per day, up from 2.5 million barrels in early 2023.
Oil sanctions have not been enforced by the US, leading to an increase in oil exports.
Warren Patterson, the head of commodities at ING Group said. :
There is a possibility that Donald Trump, the US President-elect, who will be entering the White House on January 1, 2016, may adopt a more aggressive stance towards Iran than he did during his first term.
Patterson stated that sanctions against Iran could put 1 million barrels of crude oil per day at risk.
It may be difficult to reduce the flow of Iranian exports to China.
Patterson stated that “we are assuming the Iranian supply will remain flat at about 3.3m B/D over 2025 with obvious downside risk to this number.”
Patterson also believes that any reduction in Iranian supplies could put the Organization of Petroleum Exporting Countries (OPEC) and its allies in a better position to begin unwinding production cuts.
Oil prices: Impact
The price of crude oil has been mostly rangebound over the past few weeks.
Despite the steep cuts in production by OPEC+, prices have not been able to maintain gains for a long period of time. It is a result of the poor demand in top-consuming countries like China.
The International Energy Agency also expects that the oil market will remain oversupplied, even if OPEC+ delays its planned increase in production by three months until the end of March.
The IEA predicts a surplus of almost 1 million barrels per a day in the next year.
Carsten Fritsch is a commodity analyst with Commerzbank AG. He said that some of the IEA’s assumptions about supply were probably overly optimistic.
Fritsch stated that the IEA calculations did not include the risk of disruptions in supply from Iran and Venezuela due to sanctions.
The market would be undersupplied by 2025’s second half if the supply from these countries drops next year. This loss is estimated at around 1.2 millions barrels of oil per day. This would also eliminate the oversupply from the first half.
The OPEC+ group would have more room to increase the supply.
Fritsch said:
We anticipate that tightening US oil sanctions, including against Iran and other countries, would tighten the supply, and therefore, oil prices will rise.
The post US sanctions against Iran to tighten supply and drive up crude prices may be updated as new information becomes available
