More Russian oil to the east squeezes Iranian crude sales to China

  • Rise in Russian sales follows Western sanctions on Moscow
  • About 20 tankers carrying Iranian oil at anchor off Singapore
  • Russia and Iran are consulting, but still vying for buyers
  • Russian sales rise even as China’s COVID measures hit demand

LONDON, May 19 (Reuters) – Exports of Iranian crude oil to China have fallen sharply since the start of the war in Ukraine, with Beijing favoring heavily discounted Russian barrels, leaving nearly 40 million barrels of Iranian oil stored on offshore tankers in Asia looking for buyers.

US and European sanctions imposed following Moscow’s February 24 invasion of Ukraine pushed more Russian crude eastward, where China scooped it up, reducing demand for oil from Iran and the United States. Venezuela, both of which are also under Western sanctions.

About 20 ships carrying Iranian oil were at anchor near Singapore in mid-May, according to data from shippers.

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Some tankers have been anchored since February, but the number of Iranian oil stocks has risen rapidly since April, trade and shipping sources said, as more Russian oil headed east.

Data and analytics firm Kpler said it estimated the amount of Iranian oil in floating storage near Singapore had risen to 37 million barrels in mid-May from 22 million barrels in early April.

The United States banned Russian oil imports shortly after Moscow invaded, while the European Union is considering a phased embargo, pushing more Russian oil shipments to Asia.

“Russia can shift nearly half of its exports to Southeast Asia, especially China…and that’s a huge potential threat to Iran’s crude exports,” said board member Hamid Hosseini. Board of Directors of the Iranian Union of Oil, Gas and Petrochemical Exporters in Tehran. told Reuters.

Iran, whose oil industry has struggled for years under US sanctions imposed on Tehran’s nuclear work, has long relied on Chinese oil purchases to keep the economy afloat.

Iran’s exports to China were estimated at between 700,000 and 900,000 barrels per day (bpd) in March, according to the consultancy’s data and calculations.

But in April, those exports would have fallen by 200,000 to 250,000 bpd, according to Iman Nasseri, managing director for the Middle East at FGE Consulting, suggesting a drop of around a quarter or a third.

Kpler said Iran exported an average of 930,000 bpd, mostly to China in the first quarter, while its preliminary estimate for April was 755,000 bpd, although he said that estimate could be revised due the difficulty of following Iranian sales.

TRADE UNDER SANCTIONS

“China is now clearly buying more (Russian) cargo from the Urals. Urals exports to China have more than tripled. This is despite a weakening in Chinese imports,” said Homayoun Falakshahi, senior analyst at Kpler.

China, where total oil imports have recently fallen due to COVID-19 restrictions, is also the biggest buyer of Russian ESPO Blend crude.

Iran and Russia have been in close contact in recent weeks to discuss how to swap oil under sanctions, three sources told Reuters. A source said the Russian side wants to know how Iran has handled transport, trade and banking, while the two sides are also discussing the establishment of companies, banks and joint funds.

Another of the sources said further talks were planned when Russian Deputy Prime Minister Alexander Novak visits Iran next week.

But the talks have not eased competition to find buyers for Russian Urals and Iranian crudes, which are generally heavier with higher sulfur content, which tends to make them more expensive to process than the Russian oil.

“No one is looking at Iranian crude anymore because Russian grades are of much higher quality and at lower prices. Iranian oil sellers are under great pressure,” said a trader at a Chinese refiner.

He said Urals delivered to China were selling at discounts of $9 a barrel to Brent for delivery in June, so Iranian barrels needed to be offered at discounts of $12 to $15 to be competitive.

‘You can legally buy Russian oil at a discount, but Iranian oil continues to be under sanctions, so naturally people are going for the easier option,’ EU trader says, referring to US sanctions more stringent on Iranian exports.

Russian oil and refined products are also flowing to other markets, including India and the United Arab Emirates (UAE).

Arrivals of Russian fuel oil at the UAE’s Fujairah storage center are expected to climb to around 2.5 million barrels in May, about 125% more than in April. Read more

India, meanwhile, has increased its purchases of Russian crude. By early June, India will have imported more than 30 million barrels in the past three months, according to Kpler, more than double the volume imported in all of 2021.

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Reporting by Bozorgmehr Sharafedin in London, Florence Tan and Chen Aizhu in Singapore Additional reporting by Rowena Edwards in London Editing by Edmund Blair and Mark Potter

Our standards: The Thomson Reuters Trust Principles.

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