Iran is struggling to find a buyer for nearly a quarter of its annual oil exports as looming Western sanctions targeting the country's nuclear program start to bite the world's third-biggest crude exporter.
Tehran is trying to sell an extra 500,000 barrels a day of oil, or nearly 23 per cent of what it exported last year, to Chinese and Indian refiners, according to two industry executives familiar with the talks.
"Iran is facing severe problems finding a new buyer," one of the executives said, explaining that Tehran was not offering discounts for the oil, which is for delivery from the start of April.
If it cannot find customers by mid-March for the oil, which is equal to the amount European refiners bought last year, Iran would be forced to put unsold barrels into floating storage in supertankers, or reduce output. Either measure could push oil prices higher.
Brent crude hit an eight-month high of $120.70 (U.S.) a barrel on Friday, amid worries about Iranian supplies and production disruptions in South Sudan and Yemen. On Monday it rose again, to $121.01 a barrel.
The European Union approved a ban on oil imports from Iran last month but delayed full implementation until July 1 so that Greece, Spain and Italy would have enough time to find alternative supplies.
In what appears to be a bid to pre-empt the embargo, Tehran announced at the weekend it was cutting crude sales to French and British companies.
Alireza Nikzad, a spokesman for Iran's oil ministry, announced on Sunday that Tehran had replaced the companies from the two countries with "new customers." He gave no further details.
Both France and Britain have already all but stopped buying Iranian crude, suggesting the move may turn out to be largely symbolic.
Even so, this is the first real action by Tehran after weeks of threats and could still have a psychological impact that may push up oil prices as the market worries that Iran could halt exports to other nations.
The Iran crisis is set to dominate International Petroleum Week, the annual gathering of the oil industry that starts on Monday in London.
The International Energy Agency, the Western countries' oil watchdog, said earlier this month that European refiners "have already curtailed imports of Iranian crude," and added that some Asian buyers would follow. China, the largest buyer of Iranian crude with imports of about 550,000 b/d last year, is now buying half that volume, according to the IEA.
European oil companies including Total of France, Royal Dutch Shell, Repsol YPF of Spain and Eni of Italy have either stopped buying Iranian oil or have halted spot purchases, industry executives said.
Iranian lawmakers have called for an immediate halt in the country's exports of oil to all EU states to hurt the region's economy and demonstrate the country's determination to go ahead with its nuclear ambitions.
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