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ENOC's jet fuel storage plans show how Iranian sanctions upending oil market

CommoditiesSep 21, 2018 02:50AM ET
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© Reuters. ENOC's jet fuel storage plans show how Iranian sanctions upending oil market

By Seng Li Peng and Jessica Jaganathan

SINGAPORE (Reuters) - Emirates National Oil Company (ENOC) has chartered at least one vessel to store jet fuel to ensure supply to airlines in Dubai as pending U.S. sanctions on Iran have cut off its access to feedstocks for producing the aviation fuel, said several industry sources.

ENOC has chartered the Suezmax-sized tankers Portman Square (NYSE:SQ) and NS Africa for 30 to 60 days with an option to store oil products, according to two shipbrokers.

The company will store jet fuel onboard at least one of the vessels, which can store about 100,000 tonnes of jet fuel, two industry sources said.

The price difference between current and forward month jet fuel swaps is in a narrow contango, a market structure where the price of a later-dated commodity is higher than the prompt price. That contango is not enough to cover the cost of storing the fuel on ships, making ENOC's move unusual, said three trade sources.

Jet fuel differentials in the Middle East have been trading at low levels due to high refining run rates and weak demand from Europe, one of the sources said. So, ENOC's demand for fuel to fill the ships could boost the differentials, he added.

While the ship-borne storage will help ENOC ensure an immediate supply of jet fuel for Dubai International Airport, the stockpiling also highlights ENOC's lack of access to Iranian condensate, an ultra-light crude oil, used to produce jet fuel.

The United Arab Emirates (UAE) government asked ENOC to replace its Iranian condensate purchases with other grades such as Eagle Ford from the United States after the announcement of the U.S. sanctions against Iran, said three industry sources who track oil and gas cargoes closely.

The United States has already enacted sanctions limiting Iranian participation in the global banking system and new edicts against the country's petroleum sector go into effect on Nov. 4.

ENOC processes Iranian condensate at its 140,000 barrels-per-day condensate splitter at the UAE port of Jebel Ali, which typically yields about 20 percent jet fuel.

However, ENOC's alternative condensate supply yields less jet fuel than the Iranian grade, said one of the three sources, which is reducing the overall jet fuel volumes.

The last Iranian condensate delivered into Jebel Ali was in August, according to Thomson Reuters shiptracking data. The company has also bought U.S. and Saudi condensate since June, the data showed.

ENOC did not immediately reply to a Reuters request seeking comment by email outside of business hours.

Qatar also produces condensates but the UAE, Saudi Arabia, Egypt and Bahrain are in the midst of a diplomatic dispute with the country.

(For a graphic on 'Location of ENOC's chartered ships & Jebel Ali splitter' click https://reut.rs/2psxkD3)

ENOC's jet fuel storage plans show how Iranian sanctions upending oil market
 

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