China’s imports of oil from Russia and Iran are set to drop this month as importers and refiners are more careful and still devise workarounds after the U.S. stepped up sanctions on Russia’s oil exporters and on China’s terminals that are key import hubs for sanctioned Iranian crude.
Imports from Russia could drop by up to 800,000 barrels per day (bpd) in November compared to the levels before the U.S. sanctions on Rosneft and Lukoil, according to estimates by Rystad Energy cited by Bloomberg. Due to a separate set of U.S. and EU sanctions on China’s key import terminals for Iran’s oil, Chinese imports of crude from Iran could drop by about 30% in November from previous months, Rystad Energy reckons.
China’s state-owned majors including Sinopec and PetroChina have canceled previously ordered Russian oil cargoes, and large state and private refiners are looking for alternative supply in the short term.
The smaller independent refiners in the province of Shandong are more risk tolerant and willing to take sanctioned barrels at the current heavy discounts, but their problem is the lack of available government quotas for crude imports.
Sanctions are also hitting smaller refiners buying Russian crude. The EU and the UK sanctioned Shandong Yulong Petrochemical Company, China’s newest refiner, which sources about half of its crude supply from Russia.
The Chinese teapots have also become more careful in handling Iranian crude oil, after the U.S. Treasury last month imposed sanctions on the Rizhao oil terminal as part of the pressure campaign on China over its purchases of Iranian crude.
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Despite the current aversion to sanctioned barrels, China is not expected to halt purchases of either Russian or Iranian oil – it just needs time to rearrange the supply chains and ship-to-ship (STS) transfers to evade sanctions effectively again, analysts say.
“Buying momentum among private refiners is expected to slow toward year-end as they approach their crude import quota limits,” Emma Li, lead market analyst at energy intelligence firm Vortexa, said early this month.
“Despite heightened enforcement measures targeting entities across the supply chain, sanctioned crude still accounted for about 30% of China’s seaborne arrivals, underscoring the resilience of private-sector demand and the adaptability of the dark fleet logistics supporting these flows,” Li noted.
By Tsvetana Paraskova for Oilprice.com
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