IRANIAN OIL TO JAPAN: UP 61.2%
PLATTS wrote, Japan's crude oil imports from Iran rebounded to pre-sanction levels for the first time in May and will likely hover around that level, at least in the near term, as the Middle Eastern producer intensifies its efforts to regain market share with an aggressive pricing policy.
For the second consecutive month, in June Japan's oil imports from Iran are estimated to be more than 300,000 b/d -- the amount Japan used to buy before sanctions were imposed -- as Tehran battles to win back its market share in Japan, which was about 10% before sanctions.
"While taking into account physical restrictions [for taking Iranian cargoes] and our relationship policy for other producers, we intend to consider maximizing [taking Iranian crudes] as long as Iran maintains its current OSP pricing policy," a Japanese refining source said.
Japanese industry sources said Japan's crude imports from Iran are expected to continue hovering at near pre-sanction levels at least over the June-July period, as some importers find Iran Heavy crude more attractive than similar medium sour crudes from the Persian Gulf.
Japan's crude imports from Iran recovered to pre-sanction levels in May, importing 307,691 b/d, up 61.2% year on year and up from 19,161 b/d in April, according to preliminary data released June 30 by the Ministry of Economy, Trade and Industry.
May import volumes from Iran were the highest since Japan imported 338,944 b/d from the country in January 2012. Iran Heavy showed the largest gain, with Japan importing an average of 187,764 b/d, more than double the amount, compared with 83,866 b/d a year ago, according to METI data.
By contrast, Japan's imports of Kuwaiti crude, as well as Arab Heavy crude imports from Saudi Arabia, showed double-digit declines in May both year on year and month on month.
"Japanese oil companies want Iranian Light and Forozan, but NIOC didn't have the availability," a source at a major Japanese importer of Iranian oil said. "They have lots of Iranian Heavy to sell...compared to last year. We took double [the amount from Iran]."
The Japanese importer also said changing specifications of Iranian Heavy had created room for discount negotiations with state-owned National Iranian Oil Company.
"It is getting heavier and the sulfur is up as well. Maybe it is from new production," the source said. "So we request a small discount. Otherwise we have to reduce the buying quantity."
Iranian Heavy crude has a gravity of 30.20 API and sulfur content of 1.91%, according to an assay from NIOC.
RECOVERY FROM APRIL
Japan's surging oil imports from Iran in May marked a significant change from the trend seen in April when imports dropped 71.9% year on year to 19,161 b/d, as local refiners avoided fixing vessels in the second half of March.
Buyers stayed away amid fears they could lose shipping insurance from the Japanese government mid-voyage, with annual insurance due to be renewed only in early April.
But with the insurance issue now resolved, Japanese importers are looking at the economics of Iranian oil over alternative grades in the Gulf. Even before sanctions were lifted, NIOC had been asking Japanese refiners to bring their imports back to pre-sanction levels, Japanese refiner sources said.
Another Japanese refiner source said Tehran had set a target to regain its 10% market share in Japan. Iran was the fourth-largest crude supplier to Japan in May, when supplies accounted for 9.3% of Japan's total average imports of 3.32 million b/d.
"The Iranians are increasingly becoming more eager to sell more [crudes] in recent months as we could not load as much during the sanctions," the refiner source said.
In June, five tankers -- all VLCCs -- arrived in Japan from Iran, discharging crude oil loaded at Kharg Island -- estimated to be about 9.7 million barrels, or 323,800 b/d, according to an S&P Global Platts analysis of data from Platts trade flow software cFlow.
Japan's Iranian oil imports in June are estimated to more than treble from 93,046 b/d a year ago, according to Platts calculations using METI data.
The count of sailings from Iran's crude oil and condensate ports continue to test new highs, as the OPEC producer's output rebounds further, rising to levels last seen before international sanctions were imposed on the country in 2011.
The large outflow comes amid rising Iranian oil output that hit 3.64 million b/d in May, the IEA said. It was the highest since 2011, while exports nearly topped pre-sanction levels at 2.1 million b/d.
Iran is expected to have the fastest growth in supplies among OPEC countries this year, averaging output of 3.6 million b/d, according to the Paris-based energy watchdog, although some say it is only a matter of time before production begins to plateau, at least until new investment pours in.
And as Japan's demand for Iranian oil grows, the country is on track to expand its fleet for Iranian oil imports by four VLCCs to 19, to be registered for government insurance cover in fiscal 2016-17 (April-March), following requests from Japanese refiners and trading houses, a source familiar with the matter said.
Japan's crude imports from Iran plummeted to an average of 170,360 b/d in 2015, mainly because of US and EU sanctions imposed, compared with an average of 313,480 b/d in 2011.
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