Chinese independent refiners snap up discounted Mideast oil as supplies rise
- Refiners snap up Iraq, UAE, Qatar crude at wide discounts
- Dongming, Chambroad, Shenghong among buyers
- Iranian oil discount widens to $3/bbl to ICE Brent
- Russian ESPO flips to discount, Urals discount widens
Chinese independent refiners are buying low-priced non-sanctioned Middle Eastern oil as traders seek to clear a surge in supply to the world's top importer, trade sources said.
Gulf oil exports are gushing into Asia as producers ramp up output and exports through the Strait of Hormuz following the interim peace deal between the U.S. and Iran, depressing oil prices globally.
The recent deals by independent refiners, also known as teapots, who are mostly based in eastern Shandong province, marks a significant jump in the group's purchase of Middle Eastern oil outside of Iran since the war started. The purchases are pushing growing supply of Russian and Iranian oil to the sidelines, depressing their values into discounts.
Abu Dhabi National Oil Co (ADNOC) sold 2 million barrels of Upper Zakum crude each to Dongming Petrochemical and Shenghong Petrochemical via a tender on Thursday, trade sources said. The cargoes were sold at wide discounts of $7-$9 a barrel to Dubai quotes free-on-board (FOB) Fujairah, they said.
The sources declined to be named as they are not authorized to speak to media. Shenghong has also purchased spot Saudi crude, they said.
Shandong-based Chambroad Petrochemical has bought 2 million barrels of Iraqi Basrah Heavy crude from Zhenhua Oil for July loading at about $5 a barrel below ICE Brent on a cost-and-freight (C&F) basis, traders said.
Another Shandong-based refiner has purchased 2 million barrels of Qatari al-Shaheen crude from a European trading firm at $5 below ICE Brent for delivery in the first half of August, they said.
"It's an active week as refiners were busy assessing the economics of various offers of Middle East crude, all discussed at discounts. It appears the supplies are rising quite suddenly," said a Singapore-based trading manager with an independent refiner.
Gross refining margins have recovered to a small profit of around 100 yuan per ton ($14.75) this week, said the manager.
Three other traders said Shandong teapots' refining margins rebounded to 200-400 yuan per ton versus a loss of 100 yuan in June depending on the crude price.
Oil from Iran, Russia under pressure. The flurry of non-sanctioned crude offers to independents have depressed prices for competing grades from Iran and Russia.
Discounts for Iranian oil were last pegged at $3 a barrel to ICE Brent on ex-storage or delivery basis, traders said. Iran's oil loadings have rebounded to 1.2 million barrels per day since the U.S. and Iran reached an interim peace deal, data from shiptracker Vortexa showed. Washington has waived sanctions for Iranian oil purchases for 60 days as part of the deal.
"Stock build may still support Iranian oil discharges into Shandong despite weaker teapot demand," Vortexa oil analyst Emma Li said.
Russia's ESPO Blend oil has flipped to discounts of $3 per barrel to ICE Brent August delivery in China from a small premium seen a couple of weeks ago, two traders involved in the grade's marketing said, as ample supply from Iran and other exporters after the Hormuz Strait reopening weighed on Russian oil values.
Discounts for Russian Urals delivered to China have also widened to about $7 a barrel, traders said, as shipments from Russia's western ports hit a record high in June and are expected to maintain that level in July as ongoing drone attacks on domestic refineries force Moscow to boost crude exports.
($1 = 6.7808 Chinese yuan renminbi)
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