Private refiners in China, the biggest crude importer, are buying more Iranian oil as competition for supplies from Russia increases.
So-called teapots prioritize flows, with Russian supplies becoming more expensive as major buyers such as state-owned Chinese refiners and Indian processors take a larger stake, according to analysts and trade data.
In March, China’s imports of Iranian crude and condensate rose 20% month-on-month to 800,000 bpd, and are on track to extend gains in the coming months, according to Emma Li, an analyst at the firm of data intelligence Vortexa Ltd.
The shift in China highlights the flow of the global crude market, with more Russian supplies sent to Asia as Western buyers avoid purchases amid the war in Ukraine. While Iranian oil has long been sanctioned by the US, China’s refineries have proved a steady outlet.
Analysts usually rely on vessel tracking to monitor these flows, as they have not appeared in official customs data since June 2022. Some of the flows will be named Malaysian crude.
Most of Iran’s oil went to state-owned refineries, but “Shandong’s private refineries, especially, are now running the show,” said Homayoun Falakshahi, senior crude oil analyst at Kpler, the oil research firm data
Iranian oil exports to China rose to nearly 1.2 million barrels per day in February, the second-highest pace since the start of 2017, according to Kpler figures. As Iranian exports take at least a month to reach China, additional charges may apply to imports from China in March and April.
Iranian oil for May delivery is selling at a discount of about $12 a barrel to ICE Brent depending on delivery, while Russia’s Urals is being offered at no more than $10 below the same point benchmark and ESPO at a discount of $6 per barrel. Given this disparity, teapots are choosing Iranian oil over Russian supplies, according to traders involved in the market.
Shandong’s independent refiners, which account for 20 percent of China’s refining capacity, or about 3.7 million barrels a day, rely almost exclusively on sanctioned oil because of its deep discounts. Supplies from Iran, Russia and Venezuela compete for sales to users in the province.
Chinese majors and Indian refiners are increasingly vying for Russian ESPO crude, which used to be the teapot grade of choice for a long time, according to Vortexa’s Li. That means Iranian crude and condensate will continue to expand market share among the kettles, he said.
–With the help of Serene Cheong.
