Iranian Oil Discounts to China Widen on Sanctions, Quota Shortage

The discounts on Iranian oil offered to China have hit their widest in more than a year, as tightening sanctions on Russia and Iran squeeze buying from independent refiners already constrained by a shortage of crude import quotas, trade sources have said.

The United States, Britain and the EU recently imposed a wave of trade restrictions on top Russian oil producers and other industry players, aiming to pressure Russian President Vladimir Putin to end the Ukraine war.

The sanctions have prompted some buyers in China and India, the two biggest Russian oil buyers, to pause their purchases, causing a sharp decline in prices for Russian crude and adding unsold Russian shipments on to already ample Iranian supplies, trade sources said.

LOGISTICS DISRUPTED AND FEARS RAISED AMONG BUYERS

The latest disruptions come on top of earlier sanctions by Washington targeting entities it said were involved in the Iranian oil trade, including four Chinese refiners as well as ports and vessels. Combined, the measures have disrupted logistics and increased sanctions fears among buyers, traders said. They pointed to a stand-off between buyers and sellers of Iranian oil this week.

"There was just too much supply, and the market is directionless," said a China-based trader. The sources declined to be named because they are not authorised to speak to media. Offers for Iranian Light crude slipped to discounts wider than US$8 a barrel to benchmark ICE Brent for December arrival, compared with a discount of about US$6 in September and around US$3 in March.

Bids sank to discounts of around US$10 a barrel, as buyers sought lower prices to make up for sanctions risks and potential issues at Chinese ports when discharging cargoes, the trade sources said. Imports of Iranian oil, which account for about 14% of China's crude imports, fell to 1.2 million barrels per day in September, the lowest since May and below the 1.38 million bpd average this year, Kpler data showed.

China regulates crude imports by independent refiners under a strict quota system. The refiners had largely run out of quota for this year by end-September, market sources said. The planned sale marks the most consequential action yet by a Russian company in the wake of Western sanctions over Russia's war in Ukraine. Refiners are looking to next month for the possibility that Beijing will issue fresh quotas, which it has done in November in the past few years. - Reuters