Key facts
- Iranian crude oil offers to Chinese buyers have declined and prices have jumped this week.
- The U.S. reinstated its blockade of Iran's shipping and ports on July 13.
- Iran's oil exports have fallen since mid-July, with no visible crossings of the Strait of Hormuz by supertankers carrying Iranian crude since then.
- Some Iranian crude, typically sold at discounts, is now being offered at premiums to ICE Brent futures.
- Chinese independent refiners are seeking alternative oil supplies due to uncertainty over Iranian availability.
Offers of Iranian crude oil to Chinese buyers have declined and prices have jumped this week as the U.S. blockade has cut Tehran's shipments, according to trade sources, with the threat of more sanctions from Washington looming. The U.S. re-imposed its blockade of Iran's shipping and ports on July 13 as a deal to halt the war between them broke down, attempting to cut off oil sales, Tehran's primary source of hard currency.
Four trade sources said the number of offers for Iranian oil cargoes to China for September and October delivery has declined from July and August cargoes, as barrels already on ships have been sold. Iran's oil exports have fallen since mid-July, with no visible crossings of the Strait of Hormuz by supertankers carrying Iranian crude since then, according to data from ship-tracking company Kpler, though many vessels turn off their location transponders.
The squeeze threatens a key feedstock for independent refiners in China's eastern province of Shandong, known as teapots, which account for about a fifth of China's refining capacity and are the top buyers of sanctioned oil. Three trade sources said some Iranian crude, typically sold at discounts, was being offered at premiums to ICE Brent futures, with one source citing a premium of about $2 a barrel. This is an abrupt shift, as cargoes of Iranian Light were being offered earlier this week at a discount of around $3 a barrel, the same as a month earlier.
Iranian crude held in floating storage outside the U.S. blockade zone has fallen to about 80 million barrels from about 105 million barrels before the blockade was reinstated, Kpler data showed. Two sources estimated that only about 30 million barrels of Iranian crude remained in Asian waters, half of usual levels. Kpler Senior Crude Oil Analyst Muyu Xu estimated there are 40 million barrels of Iranian oil held on ships in Malaysian waters east of Singapore, though most have been promised to buyers. Xu noted that buyers could face virtually no new Iranian supplies available for late-September delivery onwards since no laden Iranian tankers have so far managed to break through the US blockade.
With uncertainty over Iranian supplies, some Chinese teapots have bought Brazil's Lapa crude, while others are looking at Iraq's Basrah crude. Sun Jianan, a senior oil analyst at Energy Aspects, said Chinese teapots are now looking beyond Russia and Iran given the thin Iranian availability amid the U.S. blockade. China's Iranian oil imports have dropped from a year ago, with shipments falling to 785,000 barrels per day in June, the lowest since February 2023, according to Kpler data. Imports in July likely rose to 823,0