Some of China’s independent refiners, the so-called teapots, are making a rare foray into the prompt Middle Eastern crude supply by buying cargoes of Abu Dhabi’s Murban grade for delivery in June, anonymous sources with knowledge of the deals told Bloomberg on Friday.
The buyers, independent refiners Fuhai Group Co. and Shaanxi Yanchang Petroleum Group, bought 1 million barrels of Murban crude each, at a premium of about $5 above the August ICE Brent futures, traders told Bloomberg.
While the reason for the Chinese teapots to turn to Abu Dhabi crude was not immediately clear, trade sources pointed to the news outlet two possible reasons. These are more than enough supply in the Middle East which has pointed to lower prices, and an unusual premium of fuel oil to international benchmarks. Chinese refiners often use cheaper and dirtier fuel oil as a feedstock. However, recent price hikes of the fuel have now made running it at teapots uneconomical.
In addition, the recent supply of cheap Iranian crude oil to Chinese teapots has been disrupted by the U.S. sanctions on two independent refiners earlier this year.
Independent refiners in China have started to experience difficulties in procuring cheap Iranian crude while others have stopped purchases from Iran, after the United States sanctioned two independent refiners in the past two months, sources with knowledge of the issue told Reuters earlier this week.
In March and April, the U.S. sanctioned two small independent Chinese refiners for purchasing and transporting Iranian oil, as part of U.S. President Donald Trump’s “maximum pressure” campaign on Iran to force it to negotiations over its nuclear program.
Five refineries in China’s Shandong province, home to the teapots, stopped buying Iranian crude in April for fear of being next on the list of sanctions, two trading executives told Reuters.
By Tsvetana Paraskova for Oilprice.com