Daily Management Review

China Saved Billions Of Dollars From Record-Low Oil Imports That Are Sanctioned


China Saved Billions Of Dollars From Record-Low Oil Imports That Are Sanctioned
China has saved this year roughly $10 billion through record imports of oil from nations subject to Western sanctions, said a Reuters report based on calculations by Reuters based on information from dealers and shiptrackers.
The United States and others' sanctions against Russia, Iran, and Venezuela had an unforeseen result of lowering the price of oil imports for refiners in top economic rival China, which frequently criticises such "unilateral" measures.
According to Reuters, Chinese importers saved money on oil imports from the three sanctioned nations compared to the price they would have paid for comparable grades from producers who are not sanctioned.
The world's second-largest oil consumer and refiner has benefited from the lower-cost imports by increasing throughput and margins, particularly for small independent operators known as 'teapots', and by facilitating profitable exports by state-owned refineries of diesel and petrol as the nation faces economic challenges.
Additionally, Moscow, Tehran, and Caracas' economies, which are otherwise constrained by Western sanctions and a reduction in investment, rely on China's purchases for money.
According to an average of information from tanker trackers Vortexa and Kpler, China imported a record 2.765 million barrels per day (bpd) of petroleum by sea from Iran, Russia, and Venezuela in the first nine months of 2023.
According to Reuters' estimate, the three nations replaced alternatives from the Middle East, West Africa, and South America by contributing a quarter of China's imports between January and September, up from approximately 21% in 2022 and doubling the 12% share in 2020.
Even though the savings only represent a small portion of China's oil import cost, independent refiners that are "opportunistic buyers and actively look for bargains" are affected, according to Kang Wu, global head of demand analysis at S&P Global Commodity Insights.
In response to specific queries from Reuters, the Chinese Foreign Ministry remained silent. Rather, it reiterated in a statement that Beijing opposes unilateral measures and that China's regular commerce merits respect and protection.
There were no comments from China's General Administration of Customs.
Based on the average of data provided by Vortexa and Kpler, Russia supplied 1.3 million bpd of seaborne petroleum from January to September. According to Chinese trading sources, China also bought roughly 800,000 bpd of ESPO oil via pipeline.
The majority of the seaborne imports come from Russia's Kozmino port on the Pacific Ocean and the Urals port on the Baltic Sea.
According to Vortexa, total Russian shipments increased by over 400,000 bpd from January to September compared to the same period last year. This increase was driven by Urals as sanctions brought on by Moscow's invasion of Ukraine caused a significant shift in the country's oil flows from Europe to India and China.
According to Reuters' study of the monthly price differences between ESPO and Tupi crude from Brazil and Urals against Oman using pricing data provided by merchants, China has saved $4.34 billion this year by importing Russian oil.
Calculations based on dealer data revealed that China saved an average of $10 per barrel compared to comparable Colombian Castilla crude for imports of Venezuelan oil, predominantly heavy grade Merey. Compared to Oman oil, the nation saved almost $15 per barrel by purchasing Iranian crude.
As Tehran increased output to nearly maximum levels and provided discounts as deep as $17 a barrel compared to Brent, China imported a record 1 million bpd from Iran over the same time, 60% above pre-sanction peaks recorded by Chinese customs in 2017 at 623,000 bpd. This resulted in savings to China of approximately $4.2 billion.
In contrast, for the first nine months of this year, Oman's premium over Brent averaged $2.
China saved $1.17 billion by purchasing Venezuelan oil between January and September, when the average of the Vortexa and Kpler figures showed inflows of Venezuelan oil at roughly 430,000 bpd.
Price limitations on Russian oil, according to a representative for the U.S. State Department, allow consumers to "drive a harder bargain" when making purchases, so reducing Moscow's income.
The impact of sanctions has led to hyperinflation in Iran and a collapse in the value of its currency, according to the spokeswoman. Since 2021, the U.S. has sanctioned over 180 people and organisations who deal with Iranian oil and petrochemicals.
The Maduro government's connection with China does not show strength, but rather its isolation "within the global community," as U.S. sanctions against Venezuela will continue to be enforced.
Teapots have feasted on inexpensive oil from the two suppliers while state refiners Sinopec and PetroChina completely avoided purchasing Iranian and Venezuelan petroleum.
During the first three quarters of 2023, teapots in Shandong province's refining hub ran at 65.7% of capacity, up 4.2 percentage points, and generated margins on processing imported oil of 567 yuan ($77.63) per tonne, compared to 50 yuan a year earlier.
However, the potential for further cost savings is limited because teapots are subject to regulatory oversight, have no fuel export limitations, and are restricted by crude import quotas.
"This is especially true for Shandong refiners which, if subjected to another round of crackdowns as seen over the past years, could put a hard limit on how much Iran exports," said Viktor Katona, Kpler's lead crude analyst.
Customs increased their inspections of heavy oil shipments to Shandong earlier this year after discovering numerous Iranian shipments that had been mislabeled as diluted bitumen to avoid import limitations.
According to observers, Iran's oil exports, which primarily go to China, could be reduced if the United States strengthens sanctions enforcement against Tehran in response to the latest Israeli conflict.