OIL: Kpler Sees 50% Probability of US–Iran Talks Breakthrough

Kpler sees a 50% probability of a breakthrough in US–Iran negotiations following a second round of talks last weekend with potential for substantial implications for commodity flows.

• Approximately 97% of Iranian crude is purchased by China, with the majority going to its Shandong private “teapot” refiners.
• If no deal is reached, and no military action, then Iranian crude production and exports are expected to drop 500 kb/d by summer. Chinese teapot refiners may reduce Iranian purchases under increasing pressure from US sanctions, threatening reduced refinery runs and tighter global supply.
• A renewed nuclear agreement would stabilize exports around 1.65 mb/d with a potential 100 kb/d increase and Iranian crude discount margins would narrow. India could resume purchases while additional demand possible from Northeast Asia and the European Mediterranean.
• Iranian crude exports could collapse in a highly speculative event of a military escalation due to US strikes on vital infrastructure like Kharg Island. A third of global seaborne crude exports would be at risk from cuts to Shandong refinery run rates or blockading the Strait of Hormuz. Exports via the alternative Jask terminal would not compensate with operational capacity just 300 kb/d. 

Source: Kpler