x Abu Dhabi, UAETuesday 25 July 2017

Sudan pitches lower oil fee to south

Sudan has lowered the transit fee it demands for South Sudanese oil in a bid to resolve a stand-off that is preventing the export of 350,000 barrels per day.

Sudan has lowered the transit fee it demands for South Sudanese oil in a bid to resolve a stand-off that is preventing the export of 350,000 barrels per day (bpd).

A resumption of exports would provide some relief to a global oil market burdened by concerns over declining Iranian shipments and the potential for conflict in the Gulf.

South Sudan stopped the flow of its crude through a pipeline leading through Sudan to the Red Sea after Khartoum withheld oil worth US$800 million (Dh2.9 billion) and built a pipeline to divert it to its refineries.

The Sudanese government demanded a transit fee of $36 a barrel, which the authorities in Juba, the capital of South Sudan, are unwilling to pay.

Negotiations mediated in Ethiopia by the former South African president Thabo Mbeki have so far been unsuccessful.

Sudan's energy minister this week tried to break the deadlock by announcing that his country had reduced the fee demanded to $32.20 a barrel.

"We think it's to the benefit of the two nations to allow the oil to pass," Awad Al Jaz told Reuters. "We expect this round will be more positive than before."

His announcement does little to narrow the gulf between the bargaining positions; South Sudan is not prepared to pay more than $1 a barrel.

Analysts say the new proposed fee is still more than 10 times what is commonly demanded internationally.

While talks between the two sides continue, oil continues to trade high on a supply squeeze and uncertainty over Iran.

Brent crude traded at an average of US$109 a barrel last year, and has risen further this year, trading near $125 a barrel yesterday.

Sanctions and an embargo on Iran could reduce the country's exports by up to 1 million bpd, the International Energy Agency (IEA) said in its monthly report released on Wednesday.

The threat of a military stand-off in the Gulf that could stop exports from the region further weighs on the market.

The IEA still says demand will grow by 800,000 bpd this year, and it sees potential for a further tightening of the market arising from limited supply.

"Our concerns are more slanted to the supply side. If we get this saga of unplanned stoppages affecting Opec and non-Opec producers going forward, then that risks dragging supply a bit lower," said David Fyfe, the head of the oil and industry markets division at the IEA.

Reduced inventories and slower-than-expected production growth outside of Opec is expected to keep pressure on the organisation to pump at the maximum levels allowed under its self-imposed ceiling of 30.5 million bpd for the remainder of the year, said the IEA.

fneuhof@thenational.ae

twitter: Follow our breaking business news and retweet to your followers. Follow us