The amount of oil that Iran currently has in storage may have come off its May peak, according to industry sources, but it is still forcing the oil producer to hold back production.
Iran’s oil in storage peaked around the end of May and has declined since, with offshore floating storage sitting at roughly 58 million barrels, London-based oil analytics firm OilX told Oilprice.com.
Market intelligence firm Kpler estimates that Iranian crude in onshore storage tanks reached 66 million barrels in June, according to Reuters, while FGE Energy sees that figure at 63 million barrels.
This is a far cry from the 15 million barrels that Iran had in onshore storage in January.
Theoretically, Iran has about 78 million barrels of total storage capacity, so 66 million barrels would mean its onshore storage capacity is about 85% full. This 85%, however, is already near the practical storage limit.
OilX estimates that Iran has another 58 million barrels of crude in floating storage on top of that, which it sees as largely flat over the last couple of months.
Reuters sources suggest that Iran is using 30 tankers, most of which are VLCCs, to store crude. Each VLCC can hold up to 2 million barrels of crude. Refinitiv data shows a total of 56.4 million barrels of crude sitting in floating storage as of July 3.
Sooner or later, this near maximum storage capacity will start to affect Iran’s crude production, which as of May, OPEC has pegged at 1.978 million bpd. This is off slightly from the 2.025 million bpd it produced in March, but is the lowest level of crude oil production in Iran since 1981.
A decline in domestic crude consumption is also helping to tax storage. Of all the OPEC countries, Iran and the UAE saw the sharpest drop off in oil demand for the month of March, with the two seeing a combined total of 500,000 bpd drop off year over year, according to OPEC’s MOMR. This is noteworthy when viewed in contrast to the dropoff in Saudi Arabia for that month, at just 100,000 bpd. Iraq, Qatar, and Kuwait also saw a combined drop in demand of just 100,000 bpd. Total demand destruction for the Middle East countries was 800,000 bpd.
According to OilX, Iran’s oil exports are expected to fall to roughly 250,000 barrels per day in June and July—down considerably from the pre-sanction era that was closer to 2.5 million bpd, further exacerbating the storage issue.
Of this 250,000 bpd, 100,000 bpd of that is making its way to China, according to OilX.
Kpler puts Iran’s June exports at 237,000 bpd, while FGE pegs it even lower still at 210,000 bpd.
As Iran continues to test the upper limits of its storage capacity with domestic demand not expected to rebound in the near term, Iran’s crude production may fall even further, lending OPEC a helping hand with meeting its overall production quotas.