Tehran (The Times Groupe)- China has become more interested in cheap Russian crude since the start of the Ukraine war, leaving almost 40 million barrels of Iranian oil sitting on tankers at sea and seeking buyers.
The US-Europe sanctions imposed over Moscow’s invasion of Ukraine on February 24 pushed more Russian crude east, where China bought it up, leading to a fall in demand for oil from Iran and Venezuela, which are also under sanctions.
China, of course, has since become more interested in cheap Venezuelan crude at a discount.
By mid-May, about 20 vessels with Iranian oil were anchored near Singapore, according to shippers’ data.
As more Russian oil headed east, some tankers anchored since February were storing Iranian oil, a trader and shipping source said.
Earlier in April, Kpler data and analytics estimated the amount of Iranian oil in floating storage near Singapore rose from 22 million barrels to 37 million barrels by mid-May.
Following Moscow’s invasion, the United States banned imports of Russian oil, and the European Union is considering a phased embargo, pushing Russian oil cargoes towards Asia.
“Hamid Hosseini, board member of Iran’s Oil, Gas and Petrochemical Products Exporters’ Union in Tehran, told Reuters that Russia can switch almost half of its exports to Southeast Asia, especially China, and that poses a significant threat for Iranian crude exports.
For years, Iran has relied on Chinese oil purchases to keep its economy afloat due to US sanctions imposed over Tehran’s nuclear program.
According to data and consultancy firm calculations, Iran exported 700,000 to 900,000 barrels per day (bpd) to China in March.
But, Iman Nasseri, managing director for the Middle East at FGE consultancy, estimates that these exports decreased by approximately 200,000 to 250,000 bpd in April, roughly a quarter or a third.
In the first quarter, Iran exported 930,000 barrels per day, mostly to China, while 755,000 barrels per day were exported in April, although this estimate was subject to revision as it is difficult to trace sales to Iran, said Kpler.
There is no doubt that China is now buying more [Russian] Urals cargoes. Urals exports to China have more than tripled. Homayoun Falakshahi, senior analyst at Kpler, says that despite weakening Chinese imports.
China, where total oil imports have fallen due to COVID19 restrictions, is also the largest buyer of Russian ESPO Blend crude.
In recent weeks, Iran and Russia have been in close contact to discuss oil trade under sanctions, three sources told Reuters. In addition, Russia and Iran discussed establishing joint companies, banks, and funds, according to a source.
Further talks are planned when the Russian deputy prime minister visits Iran next week, according to a third source.
However, the talks have not reduced the competition to find buyers for Russian Urals and Iranian crudes, which are usually heavier and have a higher sulfur content, making them more expensive to process than Russian oil.
“Iranian crude is no longer a consideration because Russian grades are much better quality and much cheaper. Traders with a Chinese refiner said Iranian oil sellers are under severe pressure.
According to him, Urals delivered to China sold at a discount of $9 per barrel to Brent for June delivery, so Iranian barrels had to be offered at discounts of $12 to $15 to compete.
“Russian oil is legal to buy at a discount, but Iranian oil continues to be sanctioned, so people naturally choose the easier option,” a European trader said, referring to tighter US sanctions on Iran’s exports.
There is also an influx of Russian oil and refined products into other markets, such as India and the United Arab Emirates (UAE).
The UAE storage hub of Fujairah is set to receive about 2.5 million barrels of Russian fuel oil in May, about 125 percent more than it did in April.
Similarly, India has increased its purchases of Russian crude. By early June, the country will have imported more than 30 million barrels in the past three months, according to Kpler, more than double what it imported in the entire year of 2021.