10-05-2018

An Iranian exodus could open more doors for US crudes in Europe

The potential reduction of Iranian crude into the European market as result of renewed sanctions will likely benefit US crude exporters, which have enjoyed an increasingly large share of that market, an S&P Global Platts analysis showed.

– Iran Light, Iran Heavy offer European refiners best value
– WTI cracking margins increasingly profitable in ARA, Med
– US sour Mars delivering near parity with Iran Heavy

President Donald Trump said Tuesday the US will withdraw from the Iran nuclear deal and reimpose economic sanctions on the latter.

Related feature — Iran Sanctions: Global Energy Implications

Cracking margins for WTI and Iran Light in both Northwest Europe and the Mediterranean have been at premium to both Saudi Arab Light and the local North Sea Forties for much of the past year.

While Iran Light has offered ARA refiners the best value for cracking light sweets since March, Platts data shows WTI is only slightly behind. Iran Light margins averaged $7.42/b in April, compared to $6.58/b for WTI, $6.35/b for Arab Light and just $3.56/b for Forties.

S&P Global Platts margin data reflects the difference between a crude’s netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.

Cracking margins in the Med tell a similar story. Iran Light margins in Italy averaged $7.62/b in April, compared to $6.58/b for WTI and $6.11/b for Arab Light. Azeri Light continues to hold a slight premium to WTI, however, averaging $6.64/b.

Iran holds sway in Europe with heavier grades as well. Iran Heavy cracking margins are some of the best in Europe, largely due to steeply discounted official selling prices.

That said, Iran Heavy margins have averaged above $8/b since March. Urals margins have only recently caught up with Iran Heavy, but only after Urals discounts to Dated Brent in NWE fell to minus $3.75/b at the beginning of the month, their weakest since early 2012.

And while Platts does not currently track European cracking margins for sour grades like Mars, a delivered cost analysis suggests Mars has been competitive with both Iran Heavy as well as Saudi Arab Medium in the ARA. Platts calculations show Mars delivered at parity with Iran Heavy over April, and at a slight 55 cent/b premium to Arab Medium.

Back in January these same spreads favored Mars by $1.87/b and $2.28/b, respectively.

S&P Global Platts cFlow shiptracking software shows Iranian exports to Europe peaked toward the end of 2017, with the bulk of the barrels — around 227,000 b/d — heading to Italy. That number has drifted lower since to around 192,000 b/d in April.

US exports to Italy, while fewer, have been on the rise, coming in over 100,000 b/d three months out of the last seven, according to cFlow.

US crude production has grown, as has US Gulf Coast crude export capacity, which is estimated to be 3.7 million b/d by S&P Global Platts Analytics. That capacity compares with record high weekly US crude exports of 2.33 million b/d, according to US Energy Information Administration data.

Source: Platts

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