As tightening sanctions on Russia and Iran threaten to disrupt global fuel supplies, China’s state-owned oil companies and major private refiners are rapidly increasing their crude purchases. Companies such as Cnooc, Shandong Yulong Petrochemical Co, and Jiangsu Eastern Shenghong Co have been urgently inquiring about crude for prompt delivery, traders revealed. The demand for crude cargoes, particularly for February delivery, spans multiple grades from regions including the Middle East, Africa, and the Americas.
This surge in demand from some of China’s largest oil buyers comes in response to the growing uncertainty over crude availability, especially for small private refiners, often referred to as “teapots.” These refiners, concentrated in China’s eastern Shandong province, were already grappling with declining profit margins before the latest sanctions were imposed by Washington last week. Now, with sanctions tightening access to discounted Russian and Iranian crude, there are concerns that these refiners could be forced to scale back operations, potentially affecting fuel production.
In response to these potential shortfalls, China’s larger state-owned refiners are positioning themselves to step in and maintain fuel output. By taking over market share, these companies would not only stabilize the domestic supply of key fuels like diesel but also ensure energy security, a priority for Beijing amid growing geopolitical tensions.
The U.S. sanctions, which target more than 180 tankers and some of Russia’s largest crude producers, have had a ripple effect throughout the Asian oil market. Buyers, shippers, and port operators are scrambling to adjust to the new restrictions. Some vessels carrying Russian ESPO crude to Shandong have been idling or anchoring offshore, as shippers navigate the consequences of the latest round of measures.
Over the past two months, the interest in spot crude among Chinese importers has been steadily increasing, fueled by rising offer prices for Iranian crude. However, the urgency to secure supplies has intensified this week, following a comprehensive set of U.S. measures aimed at disrupting the operations of the “dark fleet,” which is responsible for transporting sanctioned cargoes.
In response to the growing demand, TotalEnergies SE has sold prompt cargoes of Oman and UAE’s Upper Zakum crude to Chinese buyers, including Cnooc and Rongsheng Petrochemical Co. Additionally, the company offered Brazilian Lapa crude. The spot premium for Oman crude, a widely traded medium-sour grade, has surged to nearly $3 per barrel, up from $1.50-$1.70 per barrel. Furthermore, the cost of shipping on the Middle East-to-China route has also risen sharply, reflecting the growing demand for alternative crude supplies.
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