Iran offering fewer crude cargoes to Chinese traders as it prepares for lifting of sanctions: sources

Iran's state-owned National Iranian Oil Company was offering fewer cargoes to Chinese trading houses as it looks to keep barrels to sell directly to the market ahead of the potential lifting of sanctions, Chinese trading sources who deal with Iranian cargoes said on Feb. 28.

"Iran is paving its way back to the market officially, which buyers are eagerly [looking forward to] to compensate for the possible reduction from Russia," a Beijing-based analyst said, adding that the market generally expected NIOC to stop offering discounts on its crude once the sanctions are lifted.

"Our reference case has long assumed an interim deal by April, but significant diplomatic progress in the current round of talks now makes a full return to the 2015 JCPOA the most likely outcome in our view," S&P Global Commodity Insights said in a note Feb. 23.

"An agreement by end-February could realistically lead to full implementation and the lifting of all oil export restrictions on Iran by May. We estimate this would facilitate 750,000 b/d of production growth within three months of sanctions relief, plus around 300,000 b/d of shipments from floating storage, lifting August crude and condensate exports to 1.75 million b/d," it added.

Currently, China imports Iranian barrels as crude grades from other origins, such as Malaysia Blend, Oman and Upper Zakum.

Independent refineries in eastern China's Shandong province took almost all of these cargoes, which amounted to 22.8 million mt, or 458,000 b/d in 2021, and 2.275 million mt in January, S&P Global data showed.

A trader based in Qingdao city, Shandong province, said his company only got 100,000 mt of Iranian crude delivery in February, compared to about 300,000 mt in the previous months.

Meanwhile, it was also getting difficult to discharge Iranian barrels stored in the floating storages in Shandong waters unless full payment has been provided, market sources said. Previously, cargoes could be discharged upon payment of a deposit.

The price for Iranian cargoes has been more or less stable at a discount of around $5/b against ICE Brent crude futures for a few weeks, according to refinery sources. This can be translated to about Yuan 400/mt ($8.65/b) lower than other similar grades, making them attractive for independent refineries.