- Independent Chinese Refiners Struggle with Rising Oil Costs.
- Discounts on Iranian Crude Narrow as Sanctions Tighten.
- Geopolitical Tensions Drive Up Iranian Oil Prices.
Iran’s crude oil sold to China reached record high levels for years. According to trade sources and analysts, new U.S. sanctions have reduced shipping capacity and increased logistics costs, reports Marine Link.
Rising Costs for Chinese Independent Refiners
The increase in Iranian and Russian crude prices has been a challenge to the Chinese independent refiners, which account for about 20% of the world’s top crude importer’s demand. To cope with the rising costs, some refiners are shifting to non-sanctioned oil sources, such as supplies from the Middle East and West Africa, to meet winter and pre-Lunar New Year demand, traders revealed.
Discounts on Iranian Crude Narrow
Iranian Light crude had discounts shrink to about $2.50 a barrel versus ICE Brent on a delivered ex-ship basis to China, down from more than $4 a barrel early in November, trade sources said. The discounts on Iranian Heavy crude fell to between $4-$5 per barrel and $7, according to the sources.
Consequences of Geopolitical Tensions and Sanctions
Iranian crude prices had started going up since October as exports declined on concerns of a possible attack on Iranian oil facilities by Israel. Sanctions last week by the Biden administration added to further squeeze the shipping capacity. The Biden sanctions froze the tankers used for Iranian oil shipments, involving ship-to-ship transfers off Singapore and Malaysia, aggravating logistics.
Decline in Chinese Imports of Iranian Oil
Imports of Iranian crude and condensate into China slumped to a four-month low of 1.31 million bpd in November, dropping by 524,000 bpd from October, according to ship tracking firm Kpler. Tougher sanctions have been hitting tanker availability, particularly in the Singapore region, where floating storage has been rising over the past three weeks, noted Xu Muyu, a senior analyst at Kpler.
Sanctioned Tankers and Shipping Disruptions
In 2023, Washington Sanctioned 45 out of the 147 tankers that were participating in Iran’s crude exports. The tankers involved included FT Island, Vanity, and Elva which remain floating off Malaysia today. The VLCC Phonix which is another sanctioned tanker has also left China and discharged cargo recently at Rizhao port in Shandong province.
Recovery in Chinese Demand and Refining Margins
China’s demand for Iranian crude has partially recovered as independent refiners, emboldened by extra government import quotas, have raised crude purchases and modestly increased fuel output. At the heart of independent refining in Shandong province, operating rates improved in mid-November after earlier cuts.
Refining margins have also supported demand, and improved. Processing Iranian crude flipped to a profit of 123 yuan ($16.93) per ton in the week to December 11, following losses in October and November, according to JLC.
Boost in Gasoline and Diesel Shipments
Gasoline and diesel shipments from Shandong to other Chinese ports reached a three-year high in November, reflecting stronger demand. Meanwhile, China’s crude imports rose for the first time in seven months in November, led by lower prices and stockpiling efforts, according to consultancy Oilchem.
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Source: Marine Link
