By Jonathan Saul and Randy Fabi

Source:

September 23, 2010

LONDON/SINGAPORE – OPEC-member hasreduced the amount of crude stored at sea in the past threemonths but still has as much as 20 million barrels anchoredoffshore, shipping and industry sources said.

The Islamic Republic typically struggles to sell its crudeduring summer months, when refiners are looking for lightercrudes to make more gasoline. This year, Western sanctions aimedat stymieing that underpin trade havemade its crude an even tougher sell.

The volume of crude in floating has steadily declined fromaround 33 million barrels in late July, and is half of its peakof more than 40 million barrels in June.

Wide-ranging international sanctions implemented this yearhave excluded crude oil sales, but Western-allied powers haveincreased political pressure on countries to trade less withIran.

“There is a sense that Iran is becoming gradually moreisolated,” a shipping source said. “They certainly have not runoff their floating as briskly as they have done in the past.”

Iran’s idle oil supplies are costing Tehran hundreds ofmillions of in lost revenue.

While shipping sources all agreed Iran was still storingmillions of barrels of oil at sea, they gave varying estimatesthat Iran was using between seven and 10 tankers for storage.

According to Reuters calculations, eight VLCCs loaded witheither crude or fuel oil have been anchored offshore in theMiddle East for more than a month.

Iran has been storing straight-run fuel oil on VLCCs for atleast three months, in an unprecedented move prompted by China’spoor feedstock demand and financing difficulties faced by buyersdue to Western sanctions, industry sources said this month.

Still, an official at private Iranian tanker operator NITCsaid none of its vessels was storing Iranian crude or condensateon tankers at the moment.

SLOW DECLINE

Iran has managed to reduce more than half of its floatingstorage since its peak of up to 25 tankers in June, thehighest build up of Iranian crude at sea since 2008. The tankersare mainly very large crude carriers (VLCCs), which can eachhold up to 2 million barrels of crude oil.

The amount of Iranian oil stored at sea may fall furtherahead of the northern hemisphere’s winter season, analysts said.Demand for its sour crude usually picks up at the end of theyear as refineries churn out more heating oil and diesel.

“Iran’s floating storage is not a new phenomenon,” saidDaniel Gerber with Swiss-based tanker tracker Petro-Logistics.

“A similar trend has emerged in previous years but thisyear’s sanctions have created complications, despite notdirectly targeting Iran’s crude oil sales.”

The sanctions, imposed in July by the United States andEuropean Union, make it harder for traders to obtain insuranceor pay for Iranian exports in such as the euro andthe dollar.

The U.S. sanctions have aimed to squeeze the IslamicRepublic’s imports of petroleum products.

“Financial transactions have become a key challenge for oilbuyers in deals with the National Iranian Oil Co,” said VijayMukherji, senior consultant at EMC.

Iran has no onshore storage for oil produced at the offshoreSoroush and Nowruz oilfields, and always keeps some crude onfloating storage off its Gulf coast.

U.S. refiners have long been prohibited from processingcrude under sanctions, but refiners elsewhere face no such ban.

(Additional reporting by Luke Pachymuthu in Singapore;Editing by William Hardy)