Both China And India May Be Giving In And Reducing Iran Oil Imports, A Big Plus To Oil Prices

Sep 28, 2018


There was significant news this week that are pointing to oil going higher, especially with this morning’s reports that Sinopec has cut its Iran oil loadings by half for Nov and Tues that India’s two biggest refiners haven’t asked for any loadings from Iran for Nov deliveries. Iran deliveries by mid Nov could still be achieved if Iran loadings are done within the two weeks for China or four weeks for India. But the clock is ticking quickly, especially for China. This week’s news is significant as it points to both China and India(Iran’s two biggest oil markets) giving in and cutting Iran oil imports to a significant degree. If so, it points to US sanctions cutting Iran oil exports to ~1.7 mmb/d and certainly above our expected range of 1.0 to 1.5 mmb/d. A cut of ~1.7 mmb/d would also be well above market expectations. This is why WTI and Brent oil prices are strong this week and expected to be stronger unless we see an abrupt change. Especially since the expectation has been that China wouldn’t be cutting Iran oil imports, rather they would maintain but also agree to not increase Iran oil imports. We should note that the impact of increased oil sanctions should ease a bit around year end as oil demand is seasonally lower every winter than in the fall and summer. The IEA forecasts Q1/19 oil demand will be 1 mmb/d lower than Q4/18. The other warning is that we still see the setup for an oil price spike in Q2/19 or Q3/19 once oil demand seasonally increases as long as Iran and Venezuela sanctions remain in place.