European demand for Iranian oil eases - sources

European demand for Iranian oil eases – sources

Source says Galp scaled back purchases of Iranian oil; Traders cite difficulty in making payment; Some buyers say still buying their usual quantities.

September 25, 2010 4:15 by Reuters

More European oil companies are trimming their purchases of Iranian oil, company sources said on Friday, citing the increasing difficulty of financial transactions with the Islamic republic.

Portuguese oil company Galp scaled back its purchases of Iranian crude earlier this year, an industry source said. A spokesman for Galp declined to comment on the company’s crude suppliers.

Oil traders said paying for the crude had become harder as a result of Western sanctions in reaction to Iran’s uranium enrichment programme.

“It’s difficult,” said one. “With the new sanctions, you can’t find a bank that wants to do it.”

Sanctions imposed in July by the United States and European Union make it harder for traders to obtain insurance or pay for Iranian exports in currencies such as the euro and the dollar.

Among major oil companies, Royal Dutch Shell has also trimmed its exposure to Iranian crude, industry sources said in May.

Europe remains a major market for Iran and companies are expected to continue to find ways to buy its oil. Another European customer said deals were still being done in euros.

“We are still buying as usual the normal volumes, nothing very special,” said a source with another European oil firm. “Some banks can do it, just a few, and the majority not.”

FLOATING STORAGE

Iran in recent months has built up large amounts of crude in storage on oil tankers, partly because of a normal seasonal lull in demand for its oil.

The volume stored at sea has fallen in the last three months, shipping and industry sources say, suggesting some of the crude has been sold.

A trader with a global oil company said some of the barrels had headed to Europe from storage over the last few months.

China and India were thought to be destinations for larger amounts by other traders. U.S. refiners have long been prohibited from processing Iranian crude under sanctions, but refiners elsewhere face no such ban.

“The best guess is probably East because there is less attention on the crude going there, whereas European companies tend to have more issues,” said a trader with another European oil company.

“It usually clears to the most accessible region, which is China and India.”

(By Alex Lawler. Additional reporting by Andrei Khalip in Lisbon; editing by Sue Thomas)