Singapore — China's appetite for Iranian crude grew more than 4% year on year in the first nine months of 2018, a trend that could continue in Q4 as Washington's decision to grant a temporary waiver will give some breathing space to buyers in Asia's biggest oil importing country, market sources said.
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Although there is no clarity on volumes on Iranian crude that Chinese buyers can ship in under the waiver, sources said that the decision would allow some of the key Chinese buyers, such as Sinopec, to honor term contracts they have for Iranian supplies.
"China has to take Iranian crude oil in Q4 due to existing term contracts," a market source said.
According to data from China's General Administration of Customs, China's crude imports from Iran rose 4.1% year on year to 23.52 million mt, or 631,556 b/d, in the January-September period, making Iran the fifth-largest supplier to China.
Monthly inflows from Iran to China had hit an all-time high at 780,473 b/d in July, while it declined to 775,852 b/d in August and to 520,630 b/d in September, according to GAC data.
Data from S&P Global Platts' trade tracker cFlow showed that volumes from Iran would be around 599,000 b/d in October and 646,000 b/d in November.
A relatively bigger portion of those Iranian barrels were delivered to northeastern China in October and November, an indication that efforts were made to build stocks at a time when there was no clarity on whether Beijing would be able to secure a waiver.
About 68%, or 407,000 b/d, of arrivals in October were delivered to the Liaoning province, cFlow data showed. The volumes eased to 208,000 b/d in November but it remained higher than an average of only 34,000 b/d recorded in the January-September period.
Refineries in Liaoning province are not typical Iranian crude oil users. But Dalian, the key port city in the province, is home to storage tanks leased by National Iranian Oil Company, in addition to the ones owned by PetroChina.
Instead, Sinopec's refineries in the eastern and southern coasts are the major Iranian crude oil users, consuming around two-third of China's total shipments from Iran.
US sanctions on Iran took effect on November 5, although top buyers of Iranian crude, including China, were given temporary waivers until the end of April 2019, when they will be expected to cut their purchases significantly.
VOLUMES FROM US FALL
Inflows of US crude to China more than doubled year on year in the January-September period, helping it to remain in the list of top 10 suppliers. But its ranking could slip amid concerns that US crude could attract tariffs amid the ongoing China-US trade war.
GAC data showed that China's crude imports from US surged 155.3% to 326,032 b/d, or 12.14 million mt, in the first nine months. But inflows have been on a downward trend since June -- from a high of 440,317 b/d recorded in May -- as China has been diverting cargoes to other countries. In October, only 1 million barrels of US crude was expected to be delivered into China , cFlow data showed.
Shipments from Saudi Arabia edged down by 0.2% year on year to 1.03 million b/d in January-September because Sinopec had cut its nominations for Saudi crude loading. But volumes are expected to rebound in Q4 to fulfill 2018 term contracts and replace a fall in volumes from other suppliers, trade sources said.
Imports from Saudi Arabia hit a 37-month high of 1.22 million b/d in May, while it fell to a 38-month low of 766,000 b/d in July. cFlow data showed that inflows from Saudi Arabia were likely to have recovered to 1.1 million b/d in October and to 1.16 million b/d in November.
ROBUST INFLOWS FROM RUSSIA
Russia remain the top crude supplier to China. The country's shipment to China rose 7.2% year on year to hit an all-time high of 6.81 million mt, or 1.66 million b/d, in September, GAC data showed.The volumes were 70% higher than the second-biggest supplier, Saudi Arabia, which sent 924,552 b/d of crude oil to China in the month.
The trend is expected to continue, trade sources said.
PetroChina's refineries in northeast China have significantly lifted their Russian ESPO crude consumption since the second Russia-China pipeline started commercial operations earlier this year. These include PetroChina's 180,000 b/d Liaoyang Petrochemical which now relies 100% on ESPO as feedstock.
ESPO also continues to be a favorite among independent refineries due to the easy access and short voyage. Strong buying interest from the independent refiners had pushed premium for M2 November-loading ESPO crude to five-year highs of $6.8/b against Dubai on September 28.
China's total crude imports rose 5.9% year on year to 9.03 million b/d in the January-September period.
GAC resumed releasing monthly crude oil imports data by origin this month after a 7-month suspension. It is expected to release the data for October later this month.
-- Oceana Zhou, firstname.lastname@example.org
-- Sambit Mohanty, email@example.com
-- Edited by Elizabeth Thang, firstname.lastname@example.org