Iran Offering Long-Term Crude Oil Sales on Stock Market

EghtesadOnline: After two successful offerings of crude oil on Iran Energy Exchange (IRENEX), officials have now rejigged the trading terms based on the needs of stakeholders.

News ID: ۷۴۶۳۸۱

25 December 2018

According to Ali Hosseini, managing director of IRENEX, the parties involved in the negotiations were the National Iranian Oil Company (as seller), IRENEX and the brokerage firms.

In a talk with the Financial Tribune, Hosseini said given the scale and scope of the projects, the proposals were conveyed to President Hassan Rouhani by Oil Minister Bijan Zangeneh.

The president took up the subject with the High Council of Economic Cooperation (a special body comprising Rouhani, judiciary chief Ayatollah Sadeq Amoli Larijani and Majlis Speaker Ali Larijani).

The HCEC, which was formed at the behest of the Leader Ayatollah Seyyed Ali Khamenei to tackle economic problems and has legislative power, on Tuesday approved the new measures for oil trading on IRENEX.

Among the main objects pursued by IRENEX is the duration of oil that is offered for sale to be extended  and become sustainable. This important factor was lacking in the first contracts, with buyers not knowing how long oil was on offer and when it would resume when the one million barrels are sold out. In the new round, the oil offering will be available for 5-6 months.

"However since I have not seen the details of the HCEC approval, I cannot give you the exact duration of the offers. But I can say with certitude that 'longer-term' offers are now in the offing," Hosseini said.

The second objective sought by the parties was to extend the timeline for settling payments of the sale from 60 to 90 days

"The second objective sought by the parties was to extend the timeline for settling payments of the sale from 60 to 90 days. This was also approved."

The third issue that was settled by the top body was the possibility of reimbursement of the total value of the oil sale in rials. In the earlier contracts only 20% of the value of the cargo could be settled in the national currency.

In the new round, the offerings will be increased to three million barrels from the previous one million.

Next NIOC Notice

In the coming NIOC notice, which should be announced by the end of next week, all the new points will be taken into account.  Other components of the deal will be the same as in previous rounds.

In the first contract on October 28, eight cargos of 35,000 barrels each at $74.85 per barrel were purchased on the stock market by three brokerages.

In the second deal on IRENEX in November, traders bought all the 700,000 barrels of Iranian light crude on offer at the time.

Several attempts had been made in the past to sell crude on the stock market in Tehran and involve the private sector and international stakeholders in the heavily state-controlled oil sector -- the lifeline of Iran’s economy.

But with looming disruptions in oil exports due to unilateral US restrictions, the government decided to go ahead with oil trade via the stock market.

Asked if the move came only after the US sanctions started to bite, Hosseini rejected the idea and said the measure was okayed in the Sixth Five-Year Economic  Development Plan approved in 2016.

The announcement of the new US sanctions and the oil trade with private stakeholders at the same time is “just a coincidence."

Affirming that US restrictions on money transfers  could potentially disturb the oil sales, Hosseni said  IRENEX has done its best not to interfere in the payment process.

"I know that some sectors are able to receive their money in spite of the US restrictions.”

Other Products

As part of its new forays, IRENEX this month traded two 44,000-ton cargoes of LPG on the international ring of the energy exchange as it seeks to amplify the offering of petroleum and petrochemical products. The exchange is also planning to create a hub for the export of electricity to neighbors

"This is our fair share in promoting clean energy, such as electricity, and enhance the role of the private sector in its trade. In the case of fossil fuels, we believe when a real price emerges its use will also become more efficient," he said referring to the heavily subsidized energy prices in Iran.

So far 319 foreign nationals have received trading codes to be able to trade on IRENEX and this number shot up when crude oil joined the exchange.

The bourse has held talks with potential foreign buyers, which include commercial attaches from embassies of major European countries, China, Japan,  Iraq and Turkey.

According to Hosseini Iran's Energy Index is now a formal regulated mercantile exchange which hosts trading in all energy carriers and now has gained the attention of country's top authorities after the Trump administration imposed wide sanctions after it withdrew from the 2015 nuclear deal with word powers.

As the market matures, he hopes that with more giant offers and more big players joining in,  IRENEX would expand and the public would come to believe the market as "one of its own."