Independent Chinese refineries intensify purchases of Iraqi and Qatari crude to offset sliding Iranian supplies

Traders said on Tuesday that independent Chinese refineries have stepped up purchases of Iraqi and Qatari crude for October and November shipments to offset a decline in Iranian supplies, coinciding with a recovery in Gulf producers’ exports through the Strait of Hormuz.

The traders said the refineries bought at least 12 million barrels of Iraqi and Qatari crude via oil trading firms Mercuria, Totsa and Trafigura, and one trader estimated total purchases at between 15 and 20 million barrels.

The cargoes were sold at premiums of between $12 and $20 per barrel over Brent front-month prices on the Intercontinental Exchange (ICE) on a delivered basis, and the bulk of purchases were Basrah Medium and Basrah Heavy, among the cheapest crudes available in the Middle East.

Buyers included Hong Ren Petrochemicals, Chi Cheng Petrochemicals, Chi Rong Petrochemicals, Ha Long and Chambrod Petrochemicals.

One trader said Iraqi oil has become "the new benchmark" for independent Chinese refineries because of the abundance of supply and the speed with which it is available.

Hong Ren and Xintchi Petrochemicals also bought three million barrels of Qatar’s Shahin crude, with shipments due in early November, the sources said.

Data from analytics firm Kpler showed that independent Chinese refineries have in recent years relied heavily on discounted crude from sanctioned producers, notably Iran, but China’s imports of Iranian oil fell in September by about half from a year earlier to 590,000 barrels per day, the lowest level since January 2023.

Kpler added that the volume of Iranian crude stored on tankers outside the embargo area fell by more than half to 45 million barrels, down from about 100 million barrels in late July, and its data showed that Iran exported no crude in September — the first time since Kpler began tracking Iranian oil flows in 2013.

With exports through the Strait of Hormuz recovering, trading houses lowered the premiums in their offers to stimulate demand from independent Chinese refiners, and one trader said buyers were no longer willing to pay prompt premiums above $20 per barrel.

Consultancy Horizon Insights said refinery run rates in Shandong province fell to about 55% by the end of September, down from around 60% at the start of the month, as refining margins deteriorated after China capped fuel price increases while crude costs rose.

Horizon’s data showed refineries were incurring losses of between 250 and 500 yuan (US$37.29 and $74.58) per metric ton in late September, compared with profits of

around 500 yuan per ton at the start of the month.

Source: the agency Reuters