China's 'teapot' refiners mop up swelling Iranian crude, defying U.S. curbs

China Sunsine Chemical Holdings

14/09/2023 09:01

By Muyu Xu
       SINGAPORE, Sept 14 (Reuters) - Appetite for Iranian
crude is growing in China, the world's biggest oil importer,
after the extension of supply cuts by Saudi Arabia and Russia
boosted global prices  LCOc1 , while Tehran is stepping up
output and exports despite U.S. sanctions.
    Although China's "teapots", or small independent refiners,
are stocking up on Iran's discounted oil as they exploit robust
margins to fill strong seasonal demand, big state refiners are
still keeping away.
    Iran's crude exports of about 1.5 million barrels per day
(bpd) stand at their highest in more than four years, with more
than 80% shipped to China, data from consultancies FGE and
Vortexa shows. 
    The export surge comes at a time when Washington and Tehran
are working on prisoner swaps and ways to free up Iranian funds
frozen overseas, leading some traders to speculate a softening
of U.S. sanctions on Iranian crude could be in the offing.
    "I think Iranians have been given unwritten confirmation ...
that there won't be any further sanctions on the crude buyers as
long as they are engaged in the unofficial negotiations," said
Iman Nasseri, managing director of FGE.
    He added that China's imports of Iranian crude could rise
another 200,000 bpd to 300,000 bpd, from 1.2 million bpd to 1.3
million bpd now, if prices stay low, although volumes could be
capped by buyers' risk appetite and payment constraints.
    The U.S. continues to enforce the sanctions on Iran's oil
and petrochemical industries, a senior State Department official
told Reuters, adding that Iran's sanctions evasion was costly.
    "We assess that the regime receives only a fraction of the
market price for the oil it is able to sell."
    Chinese state-owned enterprises had not resumed import and
refining of Iranian oil because U.S. sanctions, and the threat
of secondary sanctions, remain a deterrent, the official added.
    Beijing has long said it opposes Washington's "long-arm"
jurisdiction, and has urged that sanctions on Iran be dropped.
    Iran is exporting about 2 million bpd of crude oil as well
as condensate and products, as Tehran has boosted production to
nearly 3.6 million bpd, say people familiar with the matter, or
near its maximum of about 4 million bpd.
    Official Chinese data rarely reflects any Iranian oil
imports, which are typically registered instead as shipments
from Malaysia, Oman or other Middle Eastern countries.
    "Washington is turning a blind eye to Iranian oil on the
water," said a trader who spoke on condition of anonymity.
    Analysts have said Iran's limited steps to slow its build-up
of near-weapons-grade uranium may help ease tension with the
United States, but there is no significant progress towards a
wider nuclear deal before the 2024 U.S. elections.
    
    TEAPOTS AND SANCTIONS
    In China, traders and analysts say, Iranian oil is bought
only by small-scale independent refineries, known as teapots,
concentrated in the coastal province of Shandong.
    State-owned refiners and major private refiners have avoided
the trade since the U.S. re-imposed sanctions in 2019, they
said.
    Lured by steep discounts, the dozens of domestically-focused
refiners source much of their feedstock from countries under
Western sanctions, such as Iran, Russia and Venezuela, going
through middlemen, trade sources said. 
    A handful of teapots that rely on Western technology or have
deals with other suppliers avoid Iranian oil, however.
    The cost-sensitive teapots are turning to Iran as Russian
crude gets expensive, a trading source in Shandong said.
    Russia's light sweet ESPO last traded in early September at
a premium of about 50 cents a barrel to ICE Brent, while medium
sour Urals crude was offered at a discount of about $1.50 to ICE
Brent, traders said.
    In contrast, Iranian Light and Iranian Heavy grades traded
at wide discounts of about $13 a barrel and near $20,
respectively, on a delivery ex-ship basis, they added.

 (Reporting by Muyu Xu; 
Additional reporting by Timothy Gardner in Washington
Editing by Florence Tan and Clarence Fernandez)
 ((muyu.xu@thomsonreuters.com; +65 9829 1075;))