By Jonathan Saul and Luke Pachymuthu
The lower sales coincide with a build-up of Iranian crude in storage and a draft U.N. resolution to expand sanctions against the Islamic Republic — the world’s fifth largest oil exporter — over its nuclear work.
Sources said that the economics of Iranian crude have been undermined by the republic’s aggressive policy in setting monthly official selling prices for its customers. They have to pay in euros, which this week hit a four-year low against the dollar.
For several years, oil companies have been reducing their exposure to Iranian crude, particularly following sanctions designed to prevent banks backing Iranian transactions introduced in 2007.
“The Iranians have been quite ambitious in the way they have been setting their official selling prices especially with the difficulty experienced by most companies from a financial point of view just to transact with them,” said a source with a major oil company which buys Iranian crude.
“The combination of the two is making most of the players in the market reduce their positions with the Iranians.”
Iran on Wednesday dismissed the draft U.N. resolution to expand sanctions as lacking legitimacy. Historically, Tehran has found ways around sanctions aimed at hampering its oil trade and has said any sanction targeting its oil trade would be “ineffective.”
PRACTICALITIES
Another industry source said the practicalities of buying Iranian crude were challenging.
“We have to do the transaction in euros,” he said on condition of anonymity. “And we have to use a non-U.S. bank.”
Shell declined to comment on its trading strategy.
The two other European majors BP and Total, who also buy crude from Iran, also declined to comment.
The sources did not provide precise details of how much Iranian crude they are buying. As of 2008, Shell was the second-biggest European customer taking 100,000 barrels per day (bpd) while BP was among the smallest, buying 25,000 bpd.
For a factbox on Iran’s crude export and fuel import customers, please click on.
The United States does not purchase Iranian crude.
A source with a European oil refiner said his company was also buying less crude from Iran, reducing daily volume to as little as 20,000 bpd from as much as 80,000 bpd in 2008.
“It is not economical at all. They don’t follow reasonable pricing,” said the source, who asked not to be identified.
Weaker demand for Iranian crude has led to a build up of stocks held on very large crude carriers (VLCCs) and other tankers at sea to the highest since 2008.
“Current estimates indicate the country has 21 of its 29 VLCCs on storage as crude output rose in April, but threat of sanctions and poor sales terms has left much of it unsold,” leading shipbroker SSY said in a report this week.
(Additional reporting by Chris Baldwin; Writing by Alex Lawler; Editing by Keiron Henderson)
