"US Likely Burdened by Simultaneous Sanctions on Iran and Russia"
Rising Naphtha Prices Affect Petrochemical Industry
Oil Refining Sector Also Watches Amid High Oil Price Uncertainty
The fuel depot near the Vasylkiv military base in Kyiv Oblast, Ukraine, reportedly shelled on the 27th of last month (local time), is seen burning. (Image source=Reuters Yonhap News)
[Asia Economy Reporter Moon Chaeseok] As international oil prices soar to $100 per barrel, the refining and petrochemical industries are focusing on the status of the US-Iran nuclear negotiations and related oil sanctions. With Western sanctions on Russian crude oil continuing and production increase talks between the US and the Organization of the Petroleum Exporting Countries (OPEC) plus Russia and other non-OPEC major 23 oil-producing countries ('OPEC+') at a standstill, the US easing sanctions on Iran could act as a factor to moderate the sharp rise in oil prices.
On the 1st (local time), as Russian forces attempted encirclement attacks on Kyiv, the capital of Ukraine, the April West Texas Intermediate (WTI) crude oil price on the New York Mercantile Exchange closed at $103.41 per barrel, up about $7.69 (8%) from the previous session. This closing price is the highest since July 22, 2014. Brent crude, the benchmark for international oil prices, also traded around $107 per barrel, marking its highest level since July 2014. Global investment bank Goldman Sachs has forecasted that due to sanctions on Russia, international oil prices could rise to as high as $150 in the worst-case scenario.
Refining and petrochemical companies are paying close attention to whether the US will ease sanctions on Iranian crude oil. While payment delays due to Russia’s exclusion from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) and other severe financial sanctions are variables, the sharp rise in oil prices is considered more critical. Refiners can see profitability increase as oil prices rise, but excessive volatility may reduce global demand, which is viewed as a negative factor. Petrochemical companies face production cost pressures if raw material prices such as naphtha rise during crude oil processing. According to industry data, naphtha prices reached $910.75 per ton on the 25th of last month, the highest in the past 52 weeks, up 17.14% from the previous week and 58.87% from the previous month.
The industry stated that while diversifying supply chains beyond Russia, they are closely monitoring the US-Iran negotiations. The petrochemical sector, which depends on Russia for 25% of its total naphtha imports, is considering expanding Middle Eastern supply chains including Saudi Arabia, the United Arab Emirates, and Kuwait. For refiners, Russian crude accounts for only about 5% of imported crude oil, so supply and demand are not considered urgent. However, they are closely watching the increased volatility in oil prices.
In this context, the Iran nuclear negotiations, ongoing since November last year, are believed to be entering their final stages, raising industry alertness. Participants in the talks, including the European Union (EU), have posted messages on social media indicating that an agreement is imminent. Iran has responded by saying it is time for the US and Western countries to make political decisions. It is reported that the two countries are discussing easing sanctions whereby if Iran stops uranium enrichment above 5% and releases detained Americans, the US would release $7 billion in Iranian oil export funds currently frozen in South Korea.
An industry official said, "The problem is not just that dependence on Russian imports is minimal at 5%, but that the situations with other suppliers like OPEC+ and Iran are also unfavorable. If Russia’s invasion of Ukraine prolongs, the problem could become serious." He added, "There is also a prospect that the US, mindful of the potential severe impact on the global oil market if it sanctions both Iran and Russia simultaneously, might ease sanctions on Iranian oil, so we are watching closely."
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