SINGAPORE / Rio de Janeiro, Brazil (Reuters) – China’s record imports of Iranian crude in recent months have squeezed supplies from rival producers, forcing oil sellers from countries such as Brazil, Angola and Russia to cut prices and divert shipments to India and Europe.
Iran’s surge in volume shocked markets and has capped global oil prices although the Biden administration is expected to resume talks with Tehran to revive the nuclear deal.
Iranian oil started entering China from late 2019 despite harsh US sanctions, but volumes have started to surge only since late last year as oil rebounded above $ 60 and buyers became emboldened by the prospect of the United States lifting sanctions under President Joe Biden.
China received a daily average of 557,000 barrels of Iranian crude between November and March, or about 5% of total imports by the world’s biggest importers, according to Refinitiv Oil Research, back to levels before former US President Donald Trump reimposed sanctions on Iran. in 2019.
(GRAPH: China’s purchase of Iranian oil returns to pre-US sanctions levels back in 2019 -)
Most of this oil ends up in the eastern province of Shandong, China’s center for independent refineries.
“These ‘sensitive’ barrels are squeezing supply from everywhere, because they are too cheap,” said a Chinese trader handling oil sales to Shandong, referring to Iranian oil that sold $ 6- $ 7 a barrel below from Brazil earlier this year. . .
A second trader said South American suppliers to West Africa and the North Sea were stepping up efforts to find new markets as Chinese demand plummeted.
Major South American exporters Brazil and Angola West Africa were among the hardest hit, while Russia’s eastern grade ESPO crude recorded some of the rare flows to the US that were squeezed by falling Chinese demand.
Shipping from Brazil, which last year overtook Angola as the No. 4 China, thanks to aggressive marketing and attractive prices, fell 36% in January-February compared to last year, although volumes increased 16% annually in March, according to Chinese customs and Refinitiv assessments.
While China’s appetite for Brazilian sweet oil from the Tupi field is “endless” – and Asian nations are still paying dearly for it – the current margins are less competitive, Roberto Castello Branco told Reuters on Sunday, in his final interview before stepping down as Petrobras Chief. Executive Officers on Monday.
India has become a bigger market for oil from Brazil, West Africa and even the North Sea as Chinese demand cools, providing the world’s No. 3 importer with many alternatives as New Delhi cuts Saudi oil purchases.
India’s imports of Brazilian and Angolan crude surged for arrivals from March to May while Europe received more Brazilian oil between March and April than at the start of the year, Refinitiv data show.
The Iranian crude attack, which came as oil from Oman, United Arab Emirates (UAE) and Malaysia, has lowered prices for competing supplies such as Norway and Brazil to multi-month lows, although they have recovered considerably in recent weeks.
(GRAPH: Iran’s surging flows of oil to China reduce supply from Brazil, West Africa and Russia -)
The spot premium for Brazilian Tupi crude shipped to China in May earlier fell to 10 cents a barrel to ICE Brent, down from more than $ 1 a barrel for late December arrivals before returning to 30-40 cents last week.
“China is now looking for light crude oil to blend heavy Iran,” said a second source with a West African producer, adding that they managed to sell just two spot cargoes for May, at slightly better prices than the “bad month” in April.
They can barely compete with Iranian barrels in Brent minus $ 3- $ 5 per barrel.
“China doesn’t want to pay high (prices) with all those sensitive barrels,” said a third trade executive.
However, the surge in Iranian supplies did not affect the market share of Saudi Arabia, China’s main oil supplier, as the OPEC kingpin serves a different client base – Chinese state refiners and large private factories.
With transactions mostly being made in Chinese currency and in some cases end buyers offering open credit, Iranian oil flows are expected to continue, particularly as private companies face less political pressure to exit lucrative businesses.
“Imagine you are a teapot boss, all you care about is whether the oil is cheap enough and if your factory is equipped to process it,” said a fourth trade executive in China.
Additional reporting by Olga Yagova in Moscow, Julia Payne and Alex Lawler in London; Edited by Florence Tan & Shri Navaratnam