Bloomberg: Oil shortage fears trigger urgent crude purchases in China

As tighter sanctions on Russia and Iran loom, China’s state-owned oil companies and large private refiners are scrambling to secure crude shipments from the Middle East and other regions to prepare for potential disruptions in fuel supply.

The analysis by Bloomberg notes that companies like Cnooc, Shandong Yulong Petrochemical Co., and Jiangsu Eastern Shenghong Co. are urgently seeking crude for immediate delivery, with February cargoes in high demand, according to traders, Caliber.Az reports.

This surge in buying activity is driven by concerns that smaller private refiners, already facing tight margins, may be forced to scale back operations or reduce fuel output if they lose access to discounted Russian and Iranian crude. These smaller players, often referred to as "teapots," are primarily based in Shandong, China’s oil hub, and have been struggling with declining profitability even before the latest round of US sanctions was announced.

In the event that smaller refiners falter, larger state-owned companies anticipate stepping in to mitigate any domestic fuel shortages, especially in critical products like diesel. This move not only helps secure energy supply but also ensures market share for the state-run firms, while addressing Beijing's growing concerns over energy security.

The latest round of US sanctions targets more than 180 tankers and some of Russia’s major crude producers, sending shockwaves through the Asian oil market. The sanctions have caused disruptions for buyers, shippers, and port operators, especially with vessels carrying Russian ESPO crude to Shandong now idling or anchoring off China as companies scramble to adjust.

Chinese importers have been increasingly seeking spot crude over the past couple of months, partly due to price hikes from Iran. However, the urgency of these efforts has escalated this week following a series of US measures aimed at restricting the operations of the "dark fleet" responsible for transporting sensitive cargos globally.

In response, TotalEnergies SE has sold prompt cargoes of Oman and UAE’s Upper Zakum crude to Chinese buyers like Cnooc and Rongsheng Petrochemical Co. Additionally, Brazilian Lapa crude was offered to buyers this week. Spot premiums for Oman crude, a widely traded medium-sour grade, surged to nearly $3 a barrel, up from $1.50-$1.70 last week. Supertanker rates for the Middle East to China route also spiked.

According to Reuters, this shift in supply dynamics will force refineries in China and India to increase their imports from the Middle East, Africa, and the Americas, which could drive up both crude prices and shipping costs. Russian oil exports to China, including pipeline deliveries, have increased by 2% in the first 11 months of 2024, reaching 2.159 million barrels per day, or 20% of China’s total crude imports.

By Tamilla Hasanova