China’s small independent refineries to continue to benefit from cheap sanctioned crude

China's small independent refineries will continue to benefit from increasingly competitive sanctioned crudes amid ample supply, Janet Kong, CEO of Hengli Petrochemical International, told Platts, part of S&P Global Energy.

"But their procurement volumes remain restricted by crude import quotas," Kong said on the sidelines of the Financial Times Asia Commodities Summit in Singapore on Dec. 3.

"Due to limited import quotas, competition between Russian and Iranian crudes is driving down feedstock costs, which will help small independent refineries survive in 2026," a Singapore-based analyst told Platts on the sidelines.

Iranian Light crude was traded at a discount of $8.5/b to ICE Dated futures on a DES Shandong basis on Dec. 4, widening from a discount of $7.0-$7.2/b in late November that was just before the quota allocation, Platts reported earlier.

ESPO crude is now offered at a discount exceeding $6/b to ICE Brent Futures on a DES Shandong basis, with some indications it could reach a $7/b discount, Platts reported.

China's small independent refineries, which have minimal exposure to the global market, are the main buyers of Russian and Iranian seaborne crude as their state-run peers stepped away.

These refineries gained around 77.01 million metric tons (1.54 million b/d) of quotas to import crude oil in 2025.

China's independent refineries, along with state-run Yanchang Petrochemical and North Huajin, are subject to annual crude import quotas set by the government.

"I think less [Russian oil] flows into China, but we have seen specific instances of it where we've had certain ports and certain entities being targeted. So obviously those have had a difficult time importing it," said Saad Rahim, Chief Economist of Trafigura, during a panel discussion at the summit.

The forum was held following the latest round of intensive sanctions on Russian energy, including US sanctions targeting Russia's two largest oil producers, Rosneft and Lukoil, as well as the EU's 19th Russian sanctions package, which for the first time targeted a Chinese state-run trading company, Chinaoil (Hong Kong) Co. Ltd, a state-owned refinery, Liaoyang Petrochemical, and the private mega refinery Yulong Petrochemical.

"There will always be a way to find the flow of this [Russian] oil back into these markets. The discount on the oil is really too much. It's too tempting to resist," said June Goh, a senior oil analyst with Sparta Commodities during the same panel discussion.

"I'm sure that after a while, they will find ways to bring the oil back into India or China," she said.