Iranian fuel oil exporters wait for Vienna talks

Iranian fuel oil exporters are awaiting the outcome of the imminent US-Iran talks for signs that they could restore trade, which could affect refining margins east of Suez.

Should there be a breakthrough at the talks, which will resume in Vienna on 29 November, Iran could bolster high-sulphur fuel oil (HSFO) exports. These have fallen by 83pc since Washington abandoned the Iran nuclear deal in 2018 and reimposed sanctions on Tehran.

Iran is a major HSFO producer and was a large exporter. It shipped 240,000 b/d of the product in 2017 according to Vortexa. But exports have fallen consistently since, to 181,000 b/d in 2018, 155,000 b/d in 2019, 85,700 b/d in 2020, and 39,000 b/d so far this year.

These figures are based on estimates and vessel-tracking, because assessing the rate of Iranian exports is complicated by some shipments not being visible. Tankers belonging to Iran's state-owned NITC fleet regularly turn off their transponders during voyages.

According to market estimates, at least 50pc of the 0.8mn-1.1mn t/month (5.2mn-7.1mn bl/month) of HSFO sold in the Middle East's main bunkering hub in Fujairah, UAE, was from Iran before 2018. This year, even with sanctions in effect, 62pc of Iran's HSFO exports have found their way via intermediaries to the UAE, and only 8pc to Singapore, according to Vortexa.

If the talks in Vienna prove successful and sanctions are lifted, Iran would be able to ramp up exports into the Middle East and Asia-Pacific regions, possibly putting pressure on refining margins and premiums. The sanctions regime has left Iran with a surplus of fuel oil, which has forced cuts to refinery runs and diversion to power utilities to use instead of natural gas.

The Mideast Gulf region could become even more over-supplied when Kuwait's long-delayed 615,000 b/d al-Zour refinery starts up next year. This will add as much as 215,000 b/d of HSFO to regional output.

By Elshan Aliyev