US sanctions may cut Iranian crude imports by China’s independent refineries in April

China's independent refineries' imports of Iranian crude could fall from the record levels registered in March due to the intense sanction threats from the US, affecting trade and refinery operations, sources said on April 3.

The Iranian crude imports by the country's independent refineries reached an all-time high of 8.07 million mt (1.91 million b/d) in March, according to Platts data. This marks an 11.9% increase from the previous high of 1.71 million b/d in August 2024 and a 19.5% surge from February's six-month peak of 1.6 million b/d, the data showed.

The rebound was driven by improved logistics, including a drawdown of floating storage off Malaysia, as well as competitive pricing compared to alternative feedstocks, according to sources.

However, market analysts said the momentum could slow in April due to renewed US sanctions on Iran's energy sector in recent weeks.

US Treasury Secretary Scott Bessent met with 16 global banks and federal law enforcement agencies in Washington on April 2 to discuss US sanctions policy on Iran, including efforts to cut its oil exports, according to a news report from Jerusalem Post.

While some independent refiners are adopting a wait-and-see approach amid the enhanced geopolitical risks, traders expect imports to remain elevated -- around 7 million mt (1.71 million b/d) in April -- as long as Iranian crude remains competitively priced.

"Independent refiners will keep buying these cargoes if they offer better economics than other options," said a trade source. "But the latest US measures could tighten supply chains."

Floating storage declines

Floating storage off Malaysia -- a key transshipment hub for Iranian oil -- has decreased as more volumes were transferred to China, sources said.

"The floating storage had been accumulating at the beginning of the year due to intensive sanctions, but bit by bit those cargoes have been moved to China throughout February-March," said a trade source.

Traders noted that stocks averaged just 426,000 b/d in March, down 44% from January-February levels, according to data from Kpler, as shipments accelerated to Shandong's independent refineries.

Those sanctioned vessels which continued to shuttle between China and Malaysia also helped bring more cargoes to buyers from independent refineries.

Traders noted that at least 1 million mt of March imports arrived via 10 sanctioned tankers, some of which were previously carrying Russian crude.

A total of 239 ships have been identified as facilitating Iranian crude oil exports since 2023. Of these, 166 tankers are currently sanctioned by the US Department of the Treasury's Office of Foreign Assets Control, according to S&P Global Commodities at Sea(opens in a new tab).

Despite enforcement risks, private Chinese terminals continue to receive shipments from sanctioned ships, which have also helped to smooth the flow of cargo from Malaysia to China.

Weaker margins

With more Iranian cargoes entering the market, prices have softened over the past few days, sources said. Iranian Light crude was offered at a $1.5-$1.6/b discount against the ICE Brent Futures on a DES Shandong basis in early April, down slightly from a $1-$1.2/b discount in late March, according to market sources.

The decline coincides with shrinking refining margins, refinery sources said.

"The margins have been weak, so the buying interest was weakened," said a refinery source.

Data from JLC showed that cracking margins for imported crudes among Shandong independent refiners fell by Yuan 112/mt ($2/b) in late March to just Yuan 52/mt ($1/b) as of March 26, while the average weekly refinery utilization rates edged up slightly to 54.8% at the end of March.

Iran's resilient output faces sanction risks

Iran's crude output remains resilient, averaging 3.23 million b/d in February, slightly up from January and consistently above 3 million b/d since September 2023, according to the Platts OPEC+ survey by S&P Global Commodity Insights.

However, analysts caution that the expanded US sanctions under the Trump administration's "maximum pressure" campaign could disrupt future production.

Analysts are divided on how much production would be shut in if the US further intensifies sanctions, given that vessels shipping Iranian crude have become much more sophisticated at evading detection.

Analysts with Platts forecast that Iranian production could fall by about 500,000 b/d year over year by the third quarter of 2025 while citing high uncertainty.