Replacing Iranian oil will be 'a significant economic loss' for Japanese refiners, who still hope to see Japan exempted from US sanctions that snap back on November 5, an industry source familiar with the situation said, reported Platts.
The VLCC Yufusan arrived at Kiire, in Japan's southwest on October 3 after loading oil at Assalouyeh and Kharg Island in Iran and Mina Al Ahmadi in Kuwait, according to S&P Global Platts trade flow software cFlow.
Japan's Iranian oil imports will likely decrease in September after showing a fourth consecutive month of year-on-year increase until August amid signs that domestic refiners were attempting to take as many cargoes as possible before US sanctions against Iran come into effect in November.
Some Japanese refiners have started looking to secure alternative term supplies to Iranian oil, starting from around January, as well as asking for incremental supplies from existing key suppliers from the Middle East, according to market sources.
Iranian export grades have long been considered highly attractive and economical feedstocks for many Northeast Asian refiners, market sources said.
Analysts indicated that the likely cutback in Iranian crude imports and higher intake from other Middle Eastern suppliers could increase Japan's overall crude procurement costs by around $0.50-$1 per barrel.
Traditionally, Japanese refiners have been importing mostly medium and heavy end crude grades, with Iranian Heavy and Forozan making up the bulk of the country's total imports from Iran this year.
Over January-August, Iranian Heavy accounted for 57.4 percent and Forozan grade accounted for 28.4 percent of Japan's total Iranian crude imports of 166,890 bpd, according to data from the Ministry of Economy, Trade and Industry (METI).
For cargoes loaded in September, the Iranian Heavy OSP was 85 cents per barrel below that of Arab Medium and 65 cents per barrel lower for August and July, Platts data showed.
Meanwhile, some Japanese refiners have covered shortfalls in Iranian supplies with more expensive Qatari crude and one particular Japanese buyer is looking at Abu Dhabi's Upper Zakum, Bahrain's Banoco Arab Medium and US Mars crude, according to market sources.
The outright OSP spread between Iranian Heavy and Qatar Marine crude was minus 63 cents per barrel for August and the discount averaged $1.05 per barrel through January-August.
Japan's Iranian crude imports averaged $75.79 per barrel on a CIF basis in August, when the country's total CIF crude imports averaged at $76.94 per barrel, Ministry of Finance data showed.
The average cost from the UAE was $77.47 per barrel in August and from Saudi Arabia $77.29 per barrel.
In addition, international outright crude prices have also extended a bullish tone in recent weeks, with front-month ICE Brent futures shooting above the $86 per barrel mark on October 3.
The crude benchmark is holding well above the 50-day exponential moving average line on a 24-hourly candlestick chart seen by Platts, signaling that the medium- to long-term uptrend remains firmly intact.
Tokyo seeking US exemption
Japan continued to press for relief from US sanctions against Iran's oil customers during a meeting in Washington on October 1 and urged US counterparts to consider the impact on the Japanese economy.
The meeting was the fourth of its kind and was held at a time when international oil benchmarks rose above $85 per barrel in recent days on tightening supply concerns and comes about a month before US sanctions on Iran snap back on November 5.
Tokyo has been seeking a US exemption for its Iranian oil imports that it considers critical for its energy security and businesses.