August 10, 2012, 12:03 PM GMT
By SARAH KENT
The six-month run-up to the implementation of a full European Union embargo on Iranian crude left many market watchers complacent about the impact sanctions would have on consumers in Europe.
By the time July 1 rolled around, most European refiners had already replaced Iranian oil with crude from other countries like Saudi Arabia, Russia and Iraq and oil prices were hovering near their lowest level since May.
And yet a significant dent to one Italian refiner’s profits in the second quarter suggests that although European refiners have kept the oil flowing, the cost of sanctions could still prove problematic.
“This movement of the market has been partially offset by the temporary disoptimizations on the availability of heavy crude oils, ahead of the oil embargo in Iran,” Chairman Gian Marco Moratti said in a statement by way of explanation.
Of course, that is only part of the story. Planned maintenance also dented Saras’ profits in the period and the European refining sector in general has struggled in recent years as a result of falling local demand and increased competition from high-tech refineries in Asia.
Still, there is no doubt the loss of Iranian crude is making a tough situation tougher still.
According to the International Energy Agency, Mediterranean refineries arguably have been the hardest hit by the latest sanctions; they have access to few immediately available substitutes to Iranian crude and the price of the default alternative, Russian Urals crude, shot up after the full EU embargo was implemented last month.
“The results for most European refiners were not particularly good for the second quarter,” said David Wech, head of research at JBC Energy, adding that soaring prices for crude grades of a similar quality to Iranian oil had diminished the benefit that refineries could reap from the fall in the benchmark price in the last quarter.
“Let’s say the Iran story has deepened the crude imbalance that is there anyway in a market where there is too much light, sweet stuff and not enough sour barrels,” he said
Indeed, speculation that U.S. and European Union sanctions against Iran could prove to be a damp squib, with Iranian oil simply redirected en masse to willing Asian buyers, freeing up other oil grades to flow back to Europe might have been overly optimistic.
According to the IEA, exports of Iranian crude plummeted by nearly 750,000 barrels a day last month to 1 million barrels a day, although this does bring the IEA figures more in line with data from other sources.
“If anything the sanctions look to be being even more successful than the EU and U.S. were planning,” said David Fyfe, head of the oil markets division at the IEA.
Still, many believe that July and August will be the toughest months for Iranian exports, and they could bounce back slightly in the Autumn as Asian buyers find ways to navigate the sanctions.
“Without question Iran had big problems to sell its crude in July but we think that that will improve from now on,” said JBC’s Mr. Wech.