Chinese independent refiners are taking advantage of significantly cheaper Middle Eastern crude, with prices discounted by as much as $5 per barrel to Brent futures on a delivered basis to China. This comes as shipments through the Strait of Hormuz have increased following a temporary peace deal and a US waiver allowing the purchase of Iranian crude. Companies like Rongsheng Petrochemical, Shandong Chambroad Petrochemicals, and Shenghong Petrochemical Group have secured spot purchases from Saudi Arabia, Iraq, and the UAE for July and August deliveries. These prices are competitive with, or even cheaper than, traditional sources like West Africa and Brazil, and potentially even less costly than recent offers for Iranian crude.
Despite the influx of Middle Eastern oil, a substantial amount of Iranian crude, estimated between 58 million and 68 million barrels, is currently idling in Asian waters. More than 20 million barrels of this has been stationary for at least seven days. This backlog is due to Iran's struggle to find buyers, as major Asian markets show little interest despite Tehran's efforts. China's imports of Iranian crude more than halved in June to about 654,000 barrels a day. The majority of these idling cargoes lack a clear destination, often indicating "for orders" or Singapore, suggesting potential ship-to-ship transfers in the Malacca Strait.
Chinese state-owned refiners are largely avoiding Iranian oil, having secured crude supplies through at least the end of August. Independent refiners, Iran's main customers before sanctions, have also been operating at a nine-year low, impacting demand. India is also hesitant to resume purchases, awaiting clarification on payment channels. The situation is further complicated by existing sanctions, insurance difficulties, and concerns that the US waiver for Iranian crude could be rescinded early, posing significant risks for potential buyers.
While state-owned Saudi Aramco and Abu Dhabi National Oil are offering oil on more flexible terms, China's private refiners are capitalising on these uncommon spot sales. These sales will count towards their annual contractual volume obligations. The ability to resell highly discounted oil or increase operating rates due to cheap raw material costs provides a strategic advantage for these refiners. The accumulation of unsold Iranian crude, however, deprives Tehran of vital revenue and could weaken its negotiating position with Washington.
