Iran is preparing to aggressively retake key Asian oil markets if sanctions are lifted

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By Serene Cheong and Saket Sundria on 06/03/2021

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SINGAPORE (Bloomberg) – The likely return of Iranian oil leads to an aggressive battle to supply part of the coveted Asian market.

Iran is a major producer of condensates – ultra-light oil that is a by-product from natural gas fields – and South Korea is Asia’s largest operator of splitters that turn them into petrochemicals for making plastics.

SK Innovation Co., Hanwha Total Petrochemical Co., and Hyundai Oilbank Co. formerly preferred Iran’s South Pars condensate due to its plentiful supply and relatively low prices, but US sanctions let these flows dry up in 2019. South Korean refineries then turned to condensates from Qatar and Australia as well as West Texas Light crude and full-range naphtha from Europe and Africa.

With the Iranian nuclear deal revived by August, the Gulf nation wants to win back its former customers. While the battle for market share will focus on Korean condensate buyers, it will also spread to the Asian light crude and naphtha markets.

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“The battle in the condensate market will be tough,” said Armaan Ashraf, an analyst at FGE, Singapore’s industry consultancy. “Iran will have to offer discounts to South Pars to motivate buyers,” and that will displace a significant amount of arbitrage condensate and naphtha across Asia and cause prices to fall relative to benchmarks, he said.

The possible lifting of the sanctions on Iranian oil will hit the condensate markets much harder than crude oil due to the relative importance of supplies from the Persian Gulf state. FGE estimates that more than 100 million barrels of South Pars are stored on land in Iran or overseas in floating and tied stores.

South Pars’ exports during the destocking phase, which could take more than a year, could account for more than a third of the condensates traded market in east Suez, the industry adviser said. Once that phase is over, Iran is expected to deliver around 300,000 barrels of South Pars a day, it said.

Negotiations on the nuclear agreement are still facing hurdles, the talks in Vienna have been postponed until next week. Both Washington and Tehran will have to make “tough decisions” that could upset domestic constituencies, said Enrique Mora, the European Union’s deputy foreign policy chief, on Wednesday.

Russia’s Deputy Prime Minister Alexander Novak sees some Iranian oil in the market this summer should an agreement be reached, though that depends on factors such as Iran’s “technical capabilities” and willingness to increase production.

In addition to South Korea, the United Arab Emirates, China, Japan and China were among South Pars’ top buyers before the sanctions. According to traders, the variety used to be sold for around $ 2 a barrel or more under the deodorized field condensate from Qatar, making it one of the cheapest commodities.

The world’s largest condensate breaker capacity is in South Korea, the Middle East and the US, which means that these buyers withheld purchases from Iran during the life of the penalties. China – which continued to buy limited quantities of Iranian crude despite the sanctions – is not a major market for condensate.



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