Why is Iran’s oil struggling to sell?

The US has closed Iran’s brief route back into the oil market. Washington revoked the waiver that allowed Tehran to sell crude globally and resumed strikes on Iranian targets after another round of attacks on commercial shipping in Hormuz, pulling apart both sides of the interim agreement that had paired freer passage through the waterway with temporary sanctions relief, Bloomberg reports.

IN CONTEXT- Iran again declared Hormuz closed over the weekend as the US carried out another wave of strikes. Just six vessels crossed the strait on Sunday, the lowest number in five weeks.

The immediate [oil] problem is already at sea: Around 63 mn barrels of Iranian crude are currently aboard tankers in the Arabian Gulf and across Asian waters. Many are either showing no clear destination or signaling that they remain available on orders — which means Iran managed to move the barrels out before finding buyers for them.

The waiver worked as a mere release valve: Around 30 mn barrels of Iranian oil were loaded between 15 June and 6 July, equivalent to around 1.3 mn bbl / d, and Kpler tracked some 34.5 mn barrels crossing Hormuz aboard 21 tankers between mid-June and 10 July. That followed months in which sanctions, blocked ports, and the disruption around Hormuz had pushed Iranian crude into floating storage. Once the US temporarily eased the restrictions, previously stranded cargoes could be financed, marketed, and delivered more easily — crude and condensate held in Southeast Asian waters fell by more than half to 24.4 mn barrels at the end of June, from 49 mn barrels one month earlier, while Far Eastern volumes dropped to 5.2 mn barrels from 9.9 mn.

Enter the rivals: Iran’s core buyers were already pulling back. China’s independent refiners imported 3.6 mn tons of Iranian crude in June, down 43% from 6.4 mn tons in May. China’s Shandong-based independent refiners went shopping elsewhere instead, buying between 16-20.5 mn barrels from Iraq, Qatar, and the UAE in recent weeks — their largest purchase of non-sanctioned Gulf oil since the conflict began. Privately owned Shenghong Petrochemical separately bought around 12 mn barrels from Iraq, Saudi Arabia, and the UAE.

Iranian crude was carrying more risk without offering a better price. Rival Gulf cargoes were offered at markdowns of around USD 5-8 / bbl to Brent for August and September delivery, compared with USD 2-3 / bbl for Iranian light. Iran tried to use the temporary window to reach beyond its traditional Chinese customer base, with cargoes marketed to refiners in Japan, Taiwan, South Korea, and India, but interest never turned into visible purchases outside China, and Indian buyers were only willing to move if the US extended the waiver beyond August.