(Bloomberg) -- Private refiners in China, the largest crude importer, are snapping up more Iranian oil as competition for supplies from Russia rises.
So-called teapots are prioritizing the flows, with Russian supplies getting more pricey as mainstream buyers such as state-owned Chinese refiners and Indian processors take a greater share, according to analysts and trade data.
In March, China’s imports of Iranian crude and condensate jumped 20% month-on-month to 800,000 barrels a day, and are on track to extend gains in coming months, according to Emma Li, analyst with data intelligence firm Vortexa Ltd.
The shift within China underscores the flux in the global crude market, with more Russian supplies being shipped to Asia as western buyers shun purchases amid the war in Ukraine. While Iranian oil has long been sanctioned by the US, refiners in China have proved to be a consistent outlet.
Analysts tend to rely on ship tracking to monitor such flows as they haven’t shown up in official customs data since June 2022. Some of the flows are rebranded as Malaysian crude.
Most Iranian oil used to go to state-owned refineries but “the private refiners in Shandong especially are now running the show,” said Homayoun Falakshahi, senior crude oil analyst at Kpler, the data and analytics firm.
Iranian oil exports to China rose to almost 1.2 million barrels a day in February, second-highest pace since start of 2017, according to Kpler figures. As it takes at least a month for Iranian exports to reach China, additional cargoes may show up in China’s imports in March and April.
Iranian oil for May arrival is being sold at about $12-a-barrel discount to ICE Brent on a delivered basis, while Russia’s Urals is being offered at no more than $10 below the same benchmark and ESPO at a discount of $6 a barrel discount. Given that disparity, teapots are choosing Iranian oil over Russian supplies, according to traders who participate in the market.
Independent refiners in Shandong, which account for 20% of China’s refining capacity, or about 3.7 million barrels a day, are almost solely relying on sanctioned oil due to its deep discounts. Supplies from Iran, Russia, and Venezuela compete for sales to users in the province.
Chinese majors and Indian refiners are increasingly scrambling for Russian ESPO crude, which used to be the teapots’ long-time favorite grade, according to Vortexa’s Li. That means Iranian crude and condensate will continue to expand market share among the teapots, she said.
--With assistance from Serene Cheong.
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