Chinese “teapots” pay premium for Iranian oil in market shift

Chinese independent refiners have begun purchasing Iranian crude at premiums to the Brent crude for the first time in years, as falling benchmark prices and shifting geopolitical dynamics reshape global oil trade flows, Reuters reports.

The move comes amid expectations that India may increase its intake of Iranian oil following a temporary waiver of sanctions by the United States. The waiver, granted in response to disruptions caused by the ongoing Middle East conflict, has already paved the way for India to receive its first Iranian oil cargo in seven years.

Iranian crude has historically traded at a discount to Brent due to sanctions. However, Chinese independent refiners—commonly known as “teapots”—have shifted course. According to trade sources, at least two refiners based in Dongying, a major hub for independents in Shandong, purchased Iranian Light earlier this week at premiums of $1.50 to $2 per barrel above ICE Brent. This marks a sharp turnaround from discounts of around $10 per barrel seen prior to the conflict.

The cargoes, currently floating near China, are expected to be delivered later this month. One trader noted that this is likely the first time since 2022 that independent refiners have paid a premium for Iranian oil.

The shift in pricing follows a sharp decline in global benchmarks. Brent crude futures fell 13% to below $100 per barrel on April 8 after the announcement of a ceasefire in the regional conflict, before rebounding by around 1% the following day. Despite the ceasefire, shipping activity through the Strait of Hormuz remains largely disrupted, adding to market uncertainty.

Chinese refiners, bolstered by newly issued import quotas from Beijing, have moved quickly to secure prompt cargoes. At the same time, domestic policy adjustments have improved refining economics. Earlier this week, China raised ceiling prices for retail gasoline and diesel by 420 yuan ($61) and 400 yuan per metric ton, respectively.

Lower crude costs combined with higher domestic fuel prices have strengthened refining margins for teapots, encouraging them to seek immediate supplies of Iranian crude, traders said.

Meanwhile, China’s state planner has urged independent refiners not to reduce processing rates below the average of the past two years, in an effort to safeguard domestic fuel supply as state-owned refiners scale back output.

By Vafa Guliyeva