China replaces Iran oil with Mideast, Africa, and Russia
China has bought enough spot crude from the Middle East, Africa and Russia in January to replace lost Iranian oil supply, trade sources said on Friday, putting it in a strong position as it tussles with the Islamic Republic over payment terms for 2012 contracts.
China will load an additional 12.43 million barrels of crude from Iraq, Russia and West Africa in January, more than covering 285,000 barrels per day (bpd) supply cut from Iran, according to trade sources and shipping data.
Sinopec Corp, the country’s top refiner, cut its crude shipments from Iran for January as the two haggle over terms for next year's supplies.
A long-term decline in exports to the world’s second-largest oil consumer would be a major blow for Iran, as China is the largest customer for its crude sales, which are under increasing threat from growing U.S. and EU sanctions.
“The last OPEC meeting basically went the way of the Saudis so the market is less tight at a time when Iran is getting squeezed by sanctions,” Alex Yap, an analyst at FACTS Global Energy, said.
OPEC oil producers on Dec. 14 agreed to an output target of 30 million barrels daily, ratifying current production at near 3-year highs as the world's top exporter Saudi Arabia ramped up output in November to the highest in three decades.
More spot crude
To replace part of the lost Iranian supply, Sinopec’s trading arm Unipec bought two more VLCCs of Iraqi Basra Light for January, doubling the volume it typically buys each month, trade sources said.
China is also importing more oil from Saudi Arabia, with the November volume hitting 1.17 million barrels per day (bpd), the second highest rate on record.
Grades for Middle East crude such as al-Shaheen and Oman hit record differentials for January, while Iraqi Basra Light stayed at a premium, which traders said could be down to the additional Chinese spot demand. Strong Asia demand has also helped support prices for West African crude.
An open West-to-East crude arbitrage and resumption in exports from Libya made it easier for China to buy more oil from Africa and Russia.
China bought 2.85 million barrels for October loading, after a months-long civil war ended in the North African nation cut off supplies. Unipec has booked another three vessels to load the same volume of oil in December, shipping fixtures showed.
China will import 184,000 bpd more in January 2012 from West Africa than the previous month as European marker Brent's premium over Dubai narrowed, making Western grades more attractive.
The open arbitrage also enabled Unipec to send a VLCC of its term Russian Urals for China in January. It stepped up purchase of another Russian grade, ESPO, buying four 730,000-barrel cargoes for January, up from the usual 2-3 parcels each month, trade sources said.
“I don’t think China will give up buying Iranian crude because it will hurt the relationship between the two countries,” a crude trader with a Chinese firm said.
The matter is likely to be resolved by March, a second trader said.