Iranian crude oil offer levels for China's independent refiners rise as supplies tighten

Iranian crude oil offer levels for China's independent refineries have been rising in November, as suppliers and shipowners remain cautious amid expectations of tighter sanctions under the Trump administration, refinery and trade sources told S&P Global Commodity Insights on Nov. 26.

In late November, Iranian Light deals were concluded at discounts in the $2.0-$2.5/b range against ICE Brent futures on a DES Shandong basis, narrowing from discounts in the $2.5-$3.0/b range for deals concluded two weeks earlier, trade sources said.

Iranian Heavy cargoes were sold at thinner discounts in the $4.8-$5.3/b range against the same benchmark, compared with discounts in the $5.5-$6.0/b range a few weeks ago.

"Iranian crudes have become expensive but are still competitive," said a refinery source in China. "Some independent refineries are willing to buy but [have] failed to source enough feedstock to meet their needs."

Preliminary monthly Commodity Insights data show that about 4.5 million mt (33 million barrels) of Iranian crude has been discharged in 2024 for China's independent refineries as of Nov. 25.

This suggested that November arrivals could fall from 6.54 million mt (1.55 million b/d) in October.

The latest US sanctions on Iran, in response to its missile attacks on Israel, are expected to tighten crude flows to China.

Washington broadened the scope of its sanctions Oct. 11 and utilized other sanction authorities to designate 23 vessels and 16 entities involved in the ghost fleet facilitating Tehran's petroleum trade.

"Fewer [Iranian] suppliers [are] offering cargoes. It looks difficult for them to get the cargoes because of the enhanced US sanctions," said a trade source in Shandong.

Another trade source in China said that not many shipowners are willing to do ship-to-ship transfers in East Asia, resulting in reduced volumes of Iranian crude being available to Chinese buyers.

"The loading volumes from Iran might not fall that much, but fewer [cargoes] have arrived," the trade source said, adding that the volume might fall to about 1.3 million b/d for November arrivals.

Iran has 155 shadow ships with 35.7 million deadweight tonnage, including more than 90 VLCCs that are often active in the Persian Gulf, East Asian waters and even occasionally in the Gulf of Guinea.

Market participants generally expect US President-elect Donald Trump to adopt a tough stance on Iranian crude exports, which could reduce the cargoes available for China's independent refineries. However, with Iran focusing on its shadow trade, the full effect of Trump's sanctions might be harder to achieve.

The average refining margin for processing imported crudes at small refineries in Shandong jumped 26.7% from a week earlier to Yuan 228/mt ($4.33/b) as of Nov. 21, while the average utilization rate at those refineries was around 52.2%, about 0.77 percentage points higher from a week earlier, data from OilChem showed.