U.S. sanctions on Iran, Venezuela set up crunch for heavier oil

(Reuters) – Tighter U.S. sanctions on Iranian oil planned for May are adding to a wealth of factors curbing global supply of heavy-medium crude, driving up prices for scarcer barrels and setting up a stand-off between buyers and sellers.

The new curbs on Iranian exports come on top of Washington’s earlier ban on Venezuelan crude and output snags in Angola, another big producer of the dense crude grades that best yield lucrative refined products like jet fuel.

U.S. officials say overall global oil supply will remain plentiful despite its sanctions, not least from the boom in U.S. shale. But much of the profusion in supply, led by the United States, Saudi Arabia and Russia, is in lighter grades.

The price for heavier crudes like Norway’s Grane and Heidrun has been firming over the last few months, a North Sea trader said. Over April, the price of Grane rose from around dated Brent plus 10 cents to close to dated Brent plus $1.00 a barrel.

This month Iraq’s SOMO sold 2 million barrels of Basra Heavy crude to China’s Unipec at a premium of over $2 a barrel to its official selling price (OSP), the highest in months, sources said.

Refiners are also seeking more of the heavy sweet crude Iran and Venezuela once provided in abundance to produce low-sulfur fuel oil ahead of new shipping emissions rules due next year.

“Over the past week we have seen heavy, sweet crude differentials rising markedly, as the long-awaited IMO impact has started to leave its mark on the crude market,” JBC Energy said in a note on Monday.

JBC cited price assessments from Argus that premiums for Australian heavy, sweet grades Pyrenees and Van Gogh versus North Sea dated rose by $2 per barrel to a record $9 per barrel.