China shifts to premium Russian crude as US sanctions block Iran supply
US sanctions have cut off cheap Iranian oil, forcing Chinese refiners to buy expensive Russian crude at a premium.
Chinese refiners are paying up to $10 per barrel more for Russian crude as US sanctions cut off Iranian supplies. Sinopec secured October delivery contracts in mid-August, a month earlier than usual. This shift stems from the US blocking both maritime routes and payment networks linked to Iranian oil sales.
Iran’s crude loadings dropped from 2 million barrels per day in March to 220,000 barrels in August. The United States reinstated the maritime blockade on July 14, preventing vessels from exiting the Strait of Hormuz. This action eliminated a primary source of discounted oil for China’s refining sector.
Sanctions target financial payment routes
The US Treasury added Turkey’s Golden Global Yatirim Bankasi to its sanctions list on September 4. The agency alleged the bank moved proceeds from Iranian crude sales through an informal network. The bank denied the claims and stated it would pursue legal action. This move blocked the financial channel for Iranian oil payments.
According to Hellenic Shipping News, these measures effectively closed the money route for Iranian crude sales. Refiners can no longer easily convert funds into cash or gold via Turkish banks. This financial isolation complements the physical blockade of shipping lanes.
Sinopec dominates Russian crude purchases
Sinopec estimated to have bought 10 to 15 cargoes of October-delivery ESPO. This volume equates to 235,000 to 353,000 barrels per day. The state-owned refiner is expected to purchase over 20 cargoes in October. Its large scale has reduced the volume available to smaller private refiners.
Private refiners, known as teapots, face higher costs for Russian barrels. They are turning to Brazil, Canada, and Iraq for alternative supply. Iraqi Basra Medium currently trades at a premium of $8 per barrel over Brent. These prices make it difficult for smaller firms to maintain profit margins.
China draws on strategic oil reserves
China is curating crude imports to manage global price spikes. The country’s crude inventories are estimated at 1.17 billion barrels. Refiners may lower run rates rather than buy expensive alternative crude. This strategy helps stabilize domestic fuel supply amidst rising international costs.
