RIO DE JANEIRO, BRAZIL – The hike in volumes purchased from Iran surprised the market and put a cap on advancing oil prices. However, U.S. President Joe Biden’s administration is expected to resume talks with Iran to revive a nuclear deal with the country.
Iran’s oil began entering China in late 2019 despite tough U.S. sanctions. Still, volumes increased from late last year as oil rebounded to prices above US$60 and buyers were attracted by the prospects of the U.S. lifting sanctions under Biden’s administration.
China received a daily average of 557,000 barrels of oil from Iran between November and March, or about 5% of total imports from China, the largest global importer, according to Refinitiv Oil Research, resuming levels seen before the reimposition of sanctions against Iran by then-U.S. President Donald Trump in 2019.
Most of that oil ended up in China’s eastern Shandong province, where its independent refineries are concentrated.
“These ‘sensitive’ barrels are crushing the offers from everywhere else, as they are simply too cheap,” said a Chinese trader working sales in Shandong, about Iranian oil, which he said has recently sold between US$6 and US$7 a barrel, below Brazil’s prices.
A second trader said that suppliers from South America, West Africa, and the North Sea are increasing efforts to find new markets due to reduced Chinese demand for their oil in the face of Iranian barrels.
Brazil, South America’s top exporter, and Angola in West Africa are among the worst affected countries. Simultaneously, Russia’s ESPO oil had some rare deals with the US recorded after lower Chinese demand.
Shipments from Brazil, which last year overtook Angola to become China’s fourth-largest supplier thanks to aggressive marketing strategies and attractive prices, dropped 36% in January and February year-on-year. However, Chinese volumes were up 16% year-on-year in March, according to Refinitiv’s assessment.
Although China’s appetite for Brazilian light oil from the Tupi field is “endless” and the Asian country still pays a premium for it, current margins are less competitive, former Petrobras (PETR4) President Roberto Castello Branco told Reuters in his last interview before leaving office.
India has become a major market for oil from Brazil, West Africa, and even the North Sea as Chinese demand has cooled.
This gives the Indians, the third-largest global importer, ample alternatives when the local government has reduced purchases from the Saudis.
Iranian oil has reduced prices from competing suppliers such as Norway and Brazil to lows in months, although they have recovered slightly in recent weeks.
Spot premiums for Brazilian Tupi oil for delivery to China in May retreated earlier to as low as 10 cents a barrel against Brent on ICE, or more than US$1 a barrel less than late December deliveries. Premiums have returned to between 30 and 40 cents in the past week.
“The Chinese are now looking for light oil for blending with heavy Iranian,” said a second source from an African producer, adding that it managed to sell only two spot shipments for May at slightly better prices than April, seen as “a bad month.” But it is hard to compete with barrels from Iran trading between US$3 and US$5 below Brent per barrel.
“China doesn’t want to pay high prices with all the sensitivity of these barrels,” said a third trading industry executive.
Iran’s higher supply, however, has not affected the market share of Saudi Arabia, Chinese’s largest supplier, since the OPEC leader serves a different customer base- state-owned refineries and large private plants.
With transactions closed mostly in Chinese currency and some cases with credit offered by end-buyers, the flow of Iranian oil should continue, especially for private companies, as long as they face little political pressure to abandon lucrative deals.
“Imagine you are the head of a private Chinese refinery. You are only concerned about whether the oil is cheap enough and whether your refinery is equipped to process it,” said a fourth source, a Chinese trading industry executive.
Source: Moneytimes