As we approach the deadline for U.S. sanctions on Iran to kick in on Nov. 4, we are seeing large consuming countries like India, the world's third-largest importer, continuing to buy Iranian crude oil as they seek options to bypass the sanctions. And, as trade wars continue between the U.S. and China, the Asian country is buying more Africa-sourced oil, away from the U.S.
Amid sanctions and ongoing trade wars, the U.S. is rerouting the flow of crude oil tankers, providing a boost to shares of Frontline Ltd. (FRO) , one of the largest crude oil tankers, as the loss of Iranian crude oil means tankers are taking longer routes to haul the commodity to Asia.
Countries in West Africa and Latin America are sending a larger amount of crude oil to China as U.S. exports have slowed on the back of U.S.-China trade wars, and the U.S. moves to sell its product to other neighboring countries like India, Taiwan and South Korea. Today, Asia is sourcing more crude from the U.S. and West Africa, significantly increasing the length and shipping times of crude oil cargoes.
As for India, a Reuters report indicates that India is set to buy 9 million barrels of Iranian oil in November, specifically, buyers include Indian Oil Corp, which will buy 6 million barrels of Iranian oil, and Mangalore Refinery and Petrochemicals Ltd, which is expected to buy 3 million barrels. According to the same article, Indian refiners imported around 10 million barrels of Iranian oil in October, and its November shipments are expected to be lower.
Today, the Trump administration is considering waivers for countries that are reducing imports of Iranian crude. As for India, the Trump Administration has said that it would consider waivers but they must eventually bring the imports to zero.
According to the Indian oil minister, Dharmendra Pradhan, India will keep buying Iranian crude despite the threat of U.S. sanctions. Pradhan also mentioned that India is considering evolving a different payment system to buy Iran's oil and that it could pay using Indian rupees, in an attempt to bypass U.S. sanctions on Iranian transactions using the dollar, which is the widely used currency in global oil trade settlements.
As for Frontline, the stock is up 30% for the year, closely following the price of crude oil, as measured by the United States Oil Fund (USO) . According to a Bloomberg report, tanker rates to haul Very Large Crude Carriers (VLCC) cargoes to Asia spiked to $40,275 in early October, or more twice the rate for late September.
Also fueling the rally in FRO shares are the exports of U.S. crude oil from core markets in the Permian and the Gulf Coast. According to the Energy Information Administration (EIA), crude oil exports have averaged 2 million barrels a day every month.
For now, we are bullish the crude oil tanker sector and our champion is Frontline.