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More Russian oil to the east squeezes Iranian crude sales to China

Iran’s crude exports to China have fallen sharply since the start of the war in Ukraine, with Beijing favoring heavily discounted Russian barrels, leaving nearly 40 million barrels of Iranian oil stored on offshore tankers in Asia and looking for buyers.

US and European sanctions imposed following Moscow’s February 24 invasion of Ukraine pushed more Russian crude east, where China scooped it up, reducing demand for oil from Iran and the United States. Venezuela, both of which are also under Western sanctions.

About 20 ships carrying Iranian oil were at anchor near Singapore in mid-May, according to data from shippers.

Some tankers have been anchored since February, but the number of Iranian oil stocks has risen rapidly since April, trade and shipping sources said, as more Russian oil headed east.

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Kpler data, an analytics firm, said it estimated the amount of Iranian oil in floating storage near Singapore had risen to 37 million barrels in mid-May from 22 million barrels in early April.

The United States banned Russian oil imports shortly after Moscow invaded, while the European Union is considering a gradual embargo, pushing more Russian oil shipments to Asia.

“Russia can shift almost half of its exports to Southeast Asia, especially China…and this is a huge potential threat to Iranian crude exports,” Hamid Hosseini said. , Member of the Board of the Union of Oil, Gas and Petrochemical Exporters of Iran.
Tehran, told Reuters.

Iran, whose oil industry has struggled for years under US sanctions imposed on Tehran’s nuclear work, has long relied on Chinese oil purchases to keep the economy afloat.

Iran’s exports to China were estimated at between 700,000 and 900,000 barrels per day (bpd) in March, according to the consultancy’s data and calculations.

But in April, those exports would have fallen by 200,000 to 250,000 bpd, according to Iman Nasseri, managing director for the Middle East at FGE Consulting, suggesting a drop of around a quarter or a third.

Kpler said Iran exported an average of 930,000 bpd, mostly to China in the first quarter, while its preliminary estimate for April was 755,000 bpd, although he said that estimate could be revised due the difficulty of following Iranian sales.

Trade under sanctions

“China is now clearly buying more [Russian] Ural cargoes. Exports from the Urals to China have more than tripled. This comes despite a weakening in Chinese imports,” said Homayoun Falakshahi, senior analyst at Kpler.

China, where total oil imports have recently fallen due to COVID-19 restrictions, is also the biggest buyer of Russian ESPO Blend crude.

Iran and Russia have been in close contact in recent weeks to discuss how to swap oil under sanctions, three sources told Reuters. A source said the Russian side wants to know how Iran has handled transport, trade and banking, while the two sides are also discussing setting up companies, banks and joint funds.

Another of the sources said further talks were planned when Russian Deputy Prime Minister Alexander Novak visits Iran next week.

But the talks have not eased competition to find buyers for Russian Urals and Iranian crudes, which are generally heavier with higher sulfur content, which tends to make them more expensive to process than the Russian oil.

“Nobody looks at Iranian rough anymore because the Russian grades are much better and at lower prices. Iranian oil sellers are under severe pressure,” said a trader at a Chinese refiner.

He said Urals delivered to China were selling at discounts of $9 a barrel to Brent for delivery in June, so Iranian barrels needed to be offered at discounts of $12 to $15 to be competitive.

‘You can legally buy Russian oil at a discount, but Iranian oil continues to be under sanctions, so naturally people are going for the easier option,’ EU trader says, referring to US sanctions more stringent on Iranian exports.

India, meanwhile, has increased its purchases of Russian crude.

By early June, India will have imported more than 30 million barrels in the past three months, according to Kpler, more than double the volume imported in all of 2021.

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