December 30, 2024 | Source: Logistics Baba
Trade insiders and analysts report that Iranian crude oil prices sold to China have soared to multi-year highs as new U.S. sanctions tightened shipping capacity and raised logistics costs.
Rising Costs for Chinese Refineries
The surge in Iranian and Russian crude prices is increasing costs for China’s independent refiners, which account for one-fifth of the world’s largest crude importer’s demand. This underscores future challenges expected from heightened U.S. pressure on Iran.
Some refiners are shifting to unsanctioned supplies from the Middle East and West Africa to meet winter and pre-Lunar New Year seasonal demand.
The discount for Iranian Light Crude against ICE Brent has narrowed to approximately $2.50 per barrel (on a delivered ex-ship basis to China), compared to $4 per barrel in early November. Iranian Heavy Crude discounts also tightened to $4-5 per barrel, down from around $7 earlier.
Impact of Sanctions and Geopolitical Tensions
Iranian oil prices have been rising since October, driven by fears of Israeli strikes on Iranian oil facilities and reduced exports from OPEC nations.
Last week, the Biden administration intensified sanctions, targeting ships involved in ship-to-ship transfers of Iranian oil via Singapore and Malaysia to China.
According to ship-tracking firm Kpler, China’s November imports of Iranian crude and condensates fell by 524,000 barrels per day month-on-month to a four-month low of 1.31 million barrels per day.
Kpler Senior Analyst Xu Muyu noted in a report: “Stricter U.S. sanctions on tankers involved in Iranian oil flows have tightened shipping capacity.” She highlighted a rise in floating storage near Singapore over the past three weeks.
Xu added that Washington has sanctioned 45 of the 147 tankers engaged in Iranian crude shipments this year.
London Stock Exchange Group (LSEG) shipping data shows several sanctioned Very Large Crude Carriers (VLCCs), including FT Island, Vanity, and Elva, idling near Malaysia. The VLCC Ceres I, involved in a July collision near Singapore, was also designated as sanctioned after delivering Iranian oil to China.
Another sanctioned tanker, Phoenix, departed China on Friday after unloading at Rizhao Port in Shandong Province, trade sources said.
Demand Recovery Drives Prices
Analysts attribute the Iranian oil price hike partly to recovering Chinese demand, with independent refiners increasing crude purchases after receiving additional government import quotas.
A JLC survey showed slight increases in operating rates at Shandong’s independent refineries since mid-November, following cuts in October due to low margins.
Despite higher Iranian crude prices, JLC reported that profit margins for imported crude processing turned positive at RMB 123 ($16.93) per ton in the week ending December 11, after losses in October and November.
Oilchem consultancy noted that gasoline and diesel shipments from Shandong to other Chinese ports hit a three-year high in November, reflecting improving demand.
China’s crude imports also recorded their first year-on-year growth in seven months in November, driven by falling prices and increased inventories.
China Top Freight Disclaimer: This article is a repost from other media sources and does not constitute investment advice. Content is for reference only.