Iran tanker incident unsettles oil, shipping markets

Oil prices jumped above $60/b briefly on Friday after Iran’s state shipping company confirmed one of its Suezmax tankers in the Red Sea carrying 1 million b/d of crude had spilt oil after two “separate explosions, probably by missile hits” occurred.

National Iranian Tanker Company (NITC), the operator of the ship called Sabiti, said the situation was under control and the oil leakage has stopped.

The incident follows the attacks last month on Saudi oil infrastructure and a number of tanker-related incidents in the Strait of Hormuz chokepoint earlier this year, which have raised geopolitical risks in the world’s biggest oil producing basin.

The uptick in prices “moves oil markets back above the first point of resistance in the options market at $60/b but is again likely to be measured, as the market continues to look for firm evidence of supply to customers being impacted,” said Chris Midgley, head of S&P Global Platts Analytics.

“With Iranian oil being under sanction, one would argue that this should have minimum impact on oil markets, but clearly it has once again reminded us the geopolitical risk remains ever present.”

TRADE FLOWS
Iran

**The Iranian Suezmax tanker Sabiti was carrying 1 million barrels of crude, and was on its way northwards toward the Suez Canal, before the incident, according to data from Platts trade flow software cFlow. Owned by NITC, the tanker has an IMO number of 9172040 and carries a Panamanian flag.

**Iran exported an estimated 400,000 b/d of crude and condensate in September, based on preliminary estimates compiled from cFlow and shipping sources. China is a key buyer of Iranian oil exports. Iran supplied oil to a broader mix pre-sanctions and exported 1.95 million b/d of Iranian crude oil and condensate last September.

**Platts Analytics expects Iranian exports to be capped at 400,000 b/d through the end of 2020. Because of tight US trade sanctions, Iranian oil shipments have been languishing at just over a fifth of the level a year before.

Storage

**Iran’s oil tankers are holding almost 55 million barrels of oil at sea, the highest since early January 2016, according to Platts estimates. The bulk of the oil held in floating storage is condensate, rather than crude, shipping and trading sources say.

**The majority of stored volumes lie off Iran’s main oil terminals — Kharg Island, Assaluyeh and Soroosh. Iran’s tankers are also storing oil off the coast of the UAE, near the bunkering hub of Fujairah.

**Iranian crude production dropped to 2.23 million b/d in September, which is the lowest output since August 1988, according to the most recent Platts OPEC survey.

PRICES
**Brent crude rose 2% to hit a high of $60.65/b on Friday morning before concerns over global demand growth reasserted themselves. Brent crude was hovering around $60/b in European trade.

**The December Dubai futures price was assessed at $57.96/b as of 4:30 pm in Singapore (0830 GMT) at the conclusion of the Platts Market on Close assessment process on Friday, up 4.6% day on day.

**In the immediate price reaction, the December Brent/Dubai EFS tightened to $2.64/b as of 0700 GMT on the news, as Dubai futures price outpaced the reaction in ICE Brent, rising to $57.59/b at the time, compared with its assessed level of $55.39/b on Thursday.

**Spot VLCC freight rates for shipping crude from the Persian Gulf to the Far East breached the 200 Worldscale mark Friday, with shipowners’ earnings racing past the $200,000/day figure for the first time in a decade.

INFRASTRUCTURE
Red Sea

**Middle East crude exports are sent through two key shipping waterways: the Bab el-Mandeb strait at the southern tip of the Red Sea and through the nearby Strait of Hormuz. Most exports of petroleum and natural gas from the Persian Gulf that transit the Suez Canal, or the SUMED pipeline pass through both the Bab el-Mandeb and the Strait of Hormuz.

**In 2018, an estimated 6.2 million b/d of crude oil, condensate, and refined petroleum products flowed through the Bab el-Mandeb Strait toward Europe, the US, and Asia, according to the US EIA.

Strait of Hormuz

**The Strait of Hormuz is the world’s most important oil chokepoint because of the large volumes of oil that flow through it. In 2018, its daily oil flow averaged 21 million b/d, or the equivalent of about 21% of global petroleum liquids consumption, according to the US EIA.

**Tanker incidents in the Middle East have impacted the market this year. The British-flagged Stena Impero, which had been detained by Iran for over two months after being seized in the Persian Gulf, was released last month.

**Ship operators in the Middle East have been on high alert, and insurance rates have soared since tanker attacks in the Gulf of Oman in May and June. The US has blamed Iran for the attacks, although Iran denies responsibility.
Source: Platts