Japan Refiners Said to Stall on Iran Crude Deals Amid U.S. Sanctions Talks

Refiners in Japan are holding off from signing oil-supply contracts from Iran, four people with knowledge of the talks said, while China International United Petroleum & Chemical Co. agreed to most terms of a 2012 deal with the Islamic republic, according to three other people.

At least three Japanese refiners that buy crude from the Persian Gulf nation haven’t renewed annual contracts with National Iranian Oil Co., pending direction from the government, according to the people, who declined to be identified because the information is confidential. The contracts are for more than 100,000 barrels a day of crude, about a third of Japan’s imports from Iran, according to data supplied by the people.

The talks underline the contrasting way in which Asian countries, among the largest importers of crude, are managing the need to secure supplies against a backdrop of tightened U.S. and European Union sanctions on OPEC’s second-biggest producer. The measures have strengthened the bargaining position of China, which buys about a fifth of Iran’s crude exports, the International Energy Agency said Feb. 10. Refiners in India are studying an Iranian offer to accept extra shipments on revised terms, three people familiar with the matter said today.

“Make no mistake, the party that’s getting hammered left, right and center at the moment is Iran,” said Praveen Kumar, an analyst at Facts Global Energy in Singapore. “They are sitting on about 400,000 barrels a day of excess crude, and it’s fair to say the Asian buyers have the upper hand at the moment.”

Seeking Exemption

Japan, the world’s second-biggest buyer of Iran’s crude after China, is seeking an exemption to a U.S. law that would punish banks that do business with Iran. The law, aimed at reducing Iran’s oil sales, will sanction any country’s financial institutions that do business with Iran’s central bank unless it’s determined that country has made “significant reductions” in Iranian oil imports.

Japan will propose cutting crude purchases from Iran by at least 11 percent annually from this year, according to a Japanese government official who declined to be named because the talks are continuing. The government has yet to reach an agreement and is still negotiating with the U.S., Foreign Minister Koichiro Gemba said today.

The refiners must complete supply deals by early March in order to buy Iranian crude beyond next month, when the current contracts expire, according to the people. An agreement between the U.S. and Japan is likely to be concluded by the end of February, according to the government official. At least one refiner has already agreed a contract for supplies starting in January, one of the people said.

China Talks

Japan reduced purchases from Iran by 11.7 percent last year to 18 million kiloliters, or about 313,000 barrels a day, according data compiled by the Ministry of Economy, Trade and Industry. That accounted for 8.8 percent of Japan’s total crude oil imports in the year.

Details of the contract between National Iranian Oil Co. and China International, or Unipec, are still to be worked out, according to two people, who declined to be identified because the information is confidential. The Chinese company will get a discount for certain crude grades from Iran compared with market prices, said one of the people.

Huang Wensheng, a Beijing-based spokesman at China Petroleum & Chemical Corp., the parent of Unipec, declined to comment on the Iran deal, citing business confidentiality.

India Refiners Undecided

The volume of Unipec’s term purchases from Iran will drop by some extent from last year’s level of between 265,000 to 280,000 barrels a day because the Chinese state oil company has halved imports in the first quarter, said one of the people, who declined to give exact volumes. The two sides should have completed 2012 supply talks by the end of December, two people said Jan. 10.

China bought an average of 557,413 barrels daily of Iranian crude in 2011, accounting for 11 percent of total purchases.

Indian refiners have yet to decide on whether they will take up Iran’s offer of additional shipments, three people said today. The terms may not necessarily involve lower prices, and could include more flexibility in the grades offered and loading dates, and an increase in the number of days of credit before India is required to pay, one of the people said. Iran hasn’t offered India a discount for its crude, one of the people said.

The U.S. and the EU suspect Iran’s nuclear program is a cover for developing atomic weapons. President Mahmoud Ahmadinejad's government denies the accusation, maintaining it’s for civilian purposes. Iran is exercising its “right to peaceful nuclear energy,” Ramin Mehmanparast, a Foreign Ministry spokesman, told reporters in Tehran today.

To contact the reporters on this story: Ramsey Al-Rikabi in Singapore at ralrikabi@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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