China’s independent refiners step up crude inquiries after US-Iran peace deal

China's independent refiners have gradually resumed inquiries for feedstock crude over the weekend after US President Donald Trump announced a peace deal with Iran, easing concerns over potential supply disruptions through the Strait of Hormuz, refinery and trade sources told Platts, part of S&P Global Energy, on June 15.

The agreement, which includes the reopening of the vital shipping chokepoint and the lifting of the US naval blockade on Iranian ports, has improved market sentiment and encouraged buying interest.

"A few more inquiries were seen in the market over the weekend after the announcement," a Dongying-based trader said. "Some of them will likely translate into actual purchases."

A trader in Shandong also noted an increase in market activity compared with late last week, supported by a sharp decline in crude prices earlier in the day.

At 1:53 pm Singapore time (0553 GMT), the ICE August Brent futures contract was down $3.62/b (4.15%) from the previous close at $83.71/b, while the NYMEX July light sweet crude contract fell $4.03/b (4.75%) from the previous close to $80.85/b.

Crude prices are expected to remain under pressure in the week ending June 19 following the US-Iran agreement, which signals the reopening of the Strait of Hormuz, the removal of the US blockade on Iranian ports, and a broader easing of military tensions in the Middle East.

"There are signs that prices may stabilize a bit, so it's a good time for refiners to secure a few cargoes," a third trader said.

Iranian crude

Independent refiners have been running low on feedstocks, with most holding enough for only two to three weeks of production due to recent price volatility.

"Sentiment is slowly changing; some nearby refineries that have not imported any crude cargoes in the past two months may take this chance to import a bit," said a Rizhao-based independent refinery source.

Iranian Light crude, previously traded at a discount of around $1/b against September ICE Brent futures, was heard to have weakened further to about $1-$1.50/b over the weekend, reflecting limited buying interest last week.

"I believe Iranian crude prices could stabilize at around $1-$1.50/b somewhat as these inquiries translate into actual demand," the Rizhao-based independent refinery source said.

Market participants cautioned, however, that normalization of crude flows through the Strait of Hormuz will take time. Confidence in the physical market is expected to recover gradually, which may help stabilize prices in the near term.

Refiners are expected to prioritize purchases of spot cargoes stored on tankers near Shandong ports and those around Chinese waters, where volumes are estimated at around 6 million-7 million mt, according to market sources.

Data from local energy consultancy JLC showed that average utilization rates at Shandong's independent refineries fell to about 51% in the first half of June, down from 53% in May.

Utilization could decline further as several refiners plan maintenance shutdowns, pending approval, according to a JLC analyst.

Refining margins for processing imported crude remain under pressure but have shown signs of improvement. Average losses narrowed to Yuan 680/mt in the first half of June, compared with Yuan 1,398/mt in May, JLC data showed.