Iranian oil supplies to China tighten as US blockade cuts Tehran's crude exports

Offers of Iranian crude oil to Chinese buyers have diminished this week, with prices jumping as U.S. sanctions, reimposed in July, continue to constrict Tehran's shipments. This development follows the breakdown of a deal to halt conflict, leading Washington to re-establish its blockade on Iran's shipping and ports, aiming to cut off oil sales, Tehran's primary source of foreign currency.

Trade sources indicate a decline in offers for Iranian oil cargoes destined for China for September and October delivery compared to earlier months. Barrels already in transit have been sold, contributing to the reduced availability. Data from ship-tracking company Kpler shows a significant drop in Iran's oil exports since mid-July, with no supertankers carrying Iranian crude visibly crossing the Strait of Hormuz since then, although tracking difficulties persist due to vessels disabling transponders.

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This suggests buyers could face virtually no new Iranian supplies available for late-September delivery onwards since no laden Iranian tankers have so far managed to break through the US blockade.

The tightening supply particularly threatens China's independent refiners, or 'teapots,' in Shandong province. These refiners, responsible for about one-fifth of China's refining capacity, are major purchasers of sanctioned oil. Some Iranian crude, traditionally sold at a discount, is now reportedly being offered at a premium to ICE Brent futures, a stark contrast to earlier pricing.

Iranian crude stored in floating storage outside the U.S. blockade zone has decreased substantially, and estimates suggest only about half the usual amount of Iranian crude remains in Asian waters. Analysts predict that buyers may face virtually no new Iranian supplies for late-September delivery onwards, as no laden Iranian tankers have successfully navigated the U.S. blockade thus far. Consequently, Chinese refiners are exploring alternatives like Brazil's Lapa crude and Iraq's Basrah crude, looking beyond traditional suppliers.

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Given the thin Iranian availability amid the US blockade, Chinese teapots are now looking beyond Russia and Iran.