4th Round of Oil Sale on Iran's Energy Exchange Soon

EghtesadOnline: After the third round of crude offer on Iran Energy Exchange ended without any trade last week, a National Iranian Oil Company official announced that the fourth phase would be launched in two weeks.

News ID: ۷۴۶۵۴۵

26 January 2019

Amirhossein Tebianian, the NIOC representative in charge of offering petroleum products on IRENEX, said the details about the fourth round will be announced in a notice on Monday, ISNA reported.

After a two-month hiatus, the NIOC announced on Jan. 23 that the third round of crude oil sales would be held in a week after the announcement and set the base price at $52.42 per barrel at the time.

In trying to sweeten the trading terms, the third round came with some change in trading procedures. It involved settling payments entirely in rials as well as foreign currencies. Exchange rates are calculated based on those reported by SANA (a system operating under the supervision of central bank that records average exchange rates from across the exchange bureaux), Financial Tribune reported.

This is while in previous rounds payments had to be settled 20% in rials and the rest in foreign currencies, namely USD, euro and dirham.

The Supreme Council of Economic Coordination – a special body comprising heads of the three branches government – agreed in December to the total settlement in rials for crude oil sales via IRENEX.

Also, the settlement period in the third round was extended up to 90 days from 60 in the previous rounds. Additionally, the pre-payment required for customers to enter the market was reduced from 10% in the previous rounds to 6% in the third, an incentive that was expected to attract buyers.

Traders were required to deposit 6% of the total value of the order with the Central Securities Depository of Iran to enter the bidding and discover prices.

In the first and second rounds of offers, buyers bought 28% and 100% of the total offer on the IRENX, respectively. Three buyers purchased eight cargos of 35,000 barrels of oil at $74.85 per barrel in the first round on Oct.28.  In the second phase on Nov.11, all the 700,000 barrels were sold at $64.97 pb.

Getting Familiar

The third round commenced as scheduled on January 21 and the offer time was extended to 17:30 PM, something most market observers ascribe to the nascent market and unfamiliarity of most participants with trading methods.

On why the third oil offer was not welcomed, Tebianian said more time is needed for the market to find a proper foothold as many customers are barely familiar with the workings of the private crude market. ”This is a fledgling market and over time more customers will get familiar…”

Recalling the special economic conditions in the country, he said it would be “immature to have high and unreasonable expectations from this market.”

The volume of crude oil offered in this manner is insignificant, he said, pointing out that the crude supply on IRENX accounts for hardly 5% of the total Iranian oil export. “In terms of statistics, the volume of crude oil supply via IRENEX is meager compared to the overall export.”

Selling oil in the energy market is an initiative to diversify trading methods to involve the private sector and international stakeholders in the heavily state-controlled oil sector.

The market is essentially export-based and commodities are offered to both domestic and international buyers at base prices set by NIOC and in line with international prices.

Offering crude in this way is considered by many as a turning point in the country’s oil industry and the move is interpreted as an alternative for exporting crude oil after the key sector was again hit by new US sanctions in November.

Outlining details about trading oil in the energy market, Tebianian said 20% of the payment is settled in cash prior to loading and 80% is on credit. As for the credit payments, presenting collateral worth 125% of the total value of the cargo is mandatory.