Iran’s Oil Supply To Venezuela Eases Glut

(Argus, 19.May.2020) — Iran’s gasoline shipments to Venezuela are helping to ease a supply glut at home, where demand has collapsed because of strict measures to check the Covid-19 pandemic.

The shipments and Tehran’s parallel support for Venezuelan state-owned PdV’s effort to repair its refining system have the added effect of needling Washington, which has boasted of success in sanctioning the two Opec producers.

Four fuel tankers loaded in Iran have exited the Mediterranean and are heading toward Venezuela, according to multiple tracking services, with a fifth vessel not far behind. The first tanker, the Iranian-flagged Fortune, is due to arrive at a Venezuelan port early next week.

The shipments follow numerous Iranian Mahan Air flights ferrying refinery catalyst and Chinese equipment into Venezuela to help restart PdV’s 940,000 b/d CRP refining complex. PdV is aiming to restart gasoline production at two refineries making up the complex – Cardon and Amuay – by mid-July, a goal that the Venezuelan oil labor union deems highly ambitious.

US officials say Iran is receiving gold from Venezuela’s central bank in exchange for the refinery work and oil supplies. For Venezuela, the supply is meant to alleviate a severe fuel shortage that has been sharply aggravated by US oil sanctions imposed in January 2019.

Facing confrontational signals from the US in the Caribbean, Tehran has repeatedly warned Washington against trying to obstruct the shipments to Venezuela, with foreign minister Javad Zarif saying on 17 May that Iran would take “appropriate and necessary measures to counter any threats.” But a senior US military commander has downplayed the possibility of intercepting the shipments.

Iranian government spokesman Ali Rabiei followed up this week by saying that Iran would “leave all options open” should the US intervene. “The delivery of these tankers carrying gasoline was ordered by the Venezuelan government and relies on the free will of countries to engage in traditional…exchanges.”

Convenient timing

The supply to Venezuela comes at a fortuitous time for Iranian state-owned NIOC as it struggles to sell or store oil inside Iran.

The country is the Mideast Gulf region’s worst-hit by the pandemic, with more than 120,000 cases and over 7,100 deaths since mid-February.

But fuel demand is now starting to inch back up. Latest figures from Iran’s state-owned oil products distributor NIOPDC put gasoline demand at around 350,000 b/d in the first week of May, up from around 280,000-290,000 b/d one month earlier, at the height of Iran’s Covid-19 restrictions.

Products consumption still remains some way off from the 475,000 b/d it averaged in December, before the start of the outbreak. Demand was as high as 590,000 b/d in the third quarter of last year, but fell sharply after the introduction of a fuel subsidy cut in November, which caused the gasoline price to jump by 50pc-100pc overnight.

This collapse in gasoline demand has created a major headache for Iranian authorities, as they repurpose crude storage tanks to hold gasoline instead.

Further complicating matters is Iran’s difficulty in cutting gasoline production to accommodate shrunken demand. More than half of its gasoline output in February came from domestic splitter projects such as the Persian Gulf Star (PGS), which need to run at or near capacity to process the condensate Iran produces at the South Pars natural gas field.

In contrast to its crude production, which Iran has reduced considerably since sanctions were reinstated on its exports, condensate output has been much harder to manage because it is predominantly associated with gas production from South Pars, which in turn is vital to meeting fast-growing demand.

Like Venezuela, Iran is a target of extensive US sanctions, including measures designed to thwart its oil exports and imports, as well as the import of oil sector equipment. But unlike Iran, the sanctions on Venezuela do not have a comprehensive secondary component that affects non-US companies, unless they use the US financial system. Notable exceptions are two trading arms belonging to Rosneft of Russia, another key PdV ally. Tomorrow marks a deadline for foreign companies to cut off ties with Rosneft’s trading arms, or face US sanctions.

— By Nader Itayim and Haik Gugarats

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