Iranian crude oil prices sold to China have reached multi-year highs as export volumes plummet, tightening discounts for the first time in five years. This shift comes amid rising concerns that escalating tensions in the Middle East could disrupt supply chains.
Discounts on Iranian crude, which previously attracted independent Chinese refiners known as “teapots,” have narrowed significantly since late 2019. Currently, Iranian Light crude is trading at less than a $4 per barrel discount to the global benchmark ICE Brent, while Iranian Heavy crude is priced at approximately $7 below Brent. These changes are particularly impactful as Iranian oil constitutes about 10% of China’s total crude imports.
The tightening discounts are occurring against a backdrop of sluggish fuel demand in China, which is further straining the already thin margins of independent refineries. If prices continue to rise or if Iranian oil flows decrease, production at these plants could be adversely affected.
Recent reports indicate that loading operations at Iran’s key export terminals, including the Kharg Island hub, have significantly declined. Concerns over potential Israeli military actions against Iranian facilities have contributed to this slowdown, although no attacks have occurred. Analysts estimate that Iran’s exports fell by approximately 340,000 barrels per day in October compared to September.
Additionally, logistical issues such as a reported pipeline leak at Kharg Island have compounded loading challenges. As a result, independent refiners are operating at just above 50% capacity and some are reporting losses on diesel production. “We are barely making money overall,” one refinery source noted.
Despite these obstacles, Iranian oil continues to flow into China, often disguised as shipments from other countries like Malaysia or Oman to circumvent U.S. sanctions. Beijing maintains that its trade with Iran is legitimate and compliant with international laws.
As geopolitical tensions persist and market dynamics evolve, stakeholders will be closely monitoring the implications for Iranian oil exports and their impact on global oil prices.
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