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Japan poised to halt Iran oil loadings in Aug ahead of US sanctions

Japanese refiners will likely halt loading cargoes of Iranian oil in August, resulting in minimal imports next month as Washington sends mixed signals about whether any of Tehran’s oil customers will be able to continue importing after US sanctions snap back in November.

A number of regular Japanese importers of Iranian oil do not have immediate plans to load any barrels from Iran in August, sources with direct knowledge of the matter told S&P Global Platts.

The absence of planned loadings in August would result in Japan importing as little as a few Iranian crude cargoes, which were loaded in July, according to sources.

Two VLCCs carrying Iranian crude, both loaded in early July, are currently heading to Japan and set to arrive in late July. But one of the VLCCs may discharge in August, sources said.

The Japanese imports are slowing to a trickle because at least a few Japanese shipping companies have decided in principle not to accept any Iranian oil cargoes loaded in August or later to give enough time to clear the transactions before the US sanctions deadline.

“We are neutral [over Iranian oil imports],” said one Japanese buyer of Iranian oil. “If shipping companies do not load [Iranian oil], we do not import.”

Top US officials have made seemingly contradictory statements in recent weeks about whether the government is considering any relief to allies that rely on Iranian oil imports.

US Treasury Secretary testified in Congress on Thursday that the US will enforce sanctions on all of Iran’s oil buyers, including China, Russia and Europe. “We’re already having conversations with our allies about cutting their purchases. We’re beginning to see a tremendous impact,” he said.

Mnuchin offered none of the wiggle room that Secretary of State Mike Pompeo suggested on Tuesday during a visit to Abu Dhabi.

“There will be a handful of countries that come to the United States and ask for relief from that. We’ll consider it,” Pompeo said in an interview with Sky News Arabia.

Sources said Japanese shipping companies did not plan to change their cautious approach after hearing Pompeo’s statement about potential sanctions relief.

Another Japanese shipping company said that it has not have received any request from Japanese refiners to carry Iranian oil cargoes after July.

Japan’s expected reduction in Iranian oil imports in August creates demand for more than 100,000 b/d of alternative supplies during peak summer demand. Japan has imported an average of 187,717 b/d of Iranian oil in August in the last five years to 2017, according to Ministry of Economy, Trade and Industry data compiled by Platts.

Japanese refiners have said they will look at alternative supplies from other Middle Eastern oil producers, including Saudi Arabia and Kuwait, as well as from West Africa, to make up for Iranian oil grades when necessary.

Saudi Aramco will provide full-term crude contractual volumes to customers in Japan for barrels across available grades loading in August, sources with direct knowledge of the matter said Monday. It was not immediately clear whether the Saudi state-owned oil giant was also restoring normal operational tolerance for crude loadings in August, but the sources said they did not receive full operational tolerance of up to 10% of contractual supply volumes until initial loadings in July.

The Japanese government still intends to request relief from US sanctions as part of its bilateral negotiations to allow it to continue importing Iranian oil, according to sources familiar with the matter.

The sanctions snap back November 4 and could block up to 1 million b/d of Iranian exports. The deadline and potential supply shortage has kept oil prices elevated for weeks.

Oil prices rose sharply on June 26 after the US State Department announced it would offer no waivers to Iran’s oil buyers, a hardline approach many allies did not expect after the Obama administration allowed them to continue some imports in 2012-2015 as long as they made significant cuts every six months.

But a week later, a top State Department official said the US would work with some Iran oil importers on a case-by-case basis to reduce their imports while trying to cut Iran’s oil revenues as much as possible.

Brian Hook, the US State Department’s director for policy planning, said the government is working to minimize disruptions to the global market and the US is “confident that there is sufficient global spare oil production capacity.”

“Our focus is on getting as many countries importing Iranian crude down to zero as soon as possible,” Hook said. “We are also working with oil market participants, including producers and consumers, to ensure market stability.”

Source: Platts

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