Trade sources and analysts say that the price of Iranian crude oil sold to China has risen to its highest level in years as new U.S. sanctions tighten shipping capacity and drive up logistics costs.
The rising prices of Iranian and Russian crude oil are increasing costs for China's independent refineries, which account for about one-fifth of demand in the world's largest crude oil importer. This highlights future challenges for the Trump administration's expected intensified pressure on Iran.
Traders said some refineries are turning to supplies not restricted by sanctions, including those from the Middle East and West Africa, to meet seasonal winter and pre-Chinese New Year demand.
The discount of Iranian light crude oil relative to ICE Brent crude has narrowed to about $2.50 per barrel (based on Delivered Ex-Ship (DES) to China), compared to around $4 per barrel in early November. Traders noted that the discount for Iranian heavy crude has also narrowed from about $7 per barrel in early November to around $4-5 per barrel.
Since October, Iranian oil prices have been rising due to concerns over potential Israeli attacks on Iranian oil facilities and a decline in exports from OPEC oil producers.
Sources and shipping data from the London Stock Exchange Group indicate that the Biden administration intensified sanctions on Iran last week, freezing certain vessels engaged in ship-to-ship oil transfers via Singapore and Malaysia to deliver Iranian oil to China.
Ship tracking firm Kpler reported that China's imports of Iranian crude oil and condensate in November fell by 524,000 barrels per day from the previous month, reaching a four-month low of 1.31 million barrels per day.
Kpler Senior Analyst Xu Muyu wrote in a report, "The U.S. has imposed stricter sanctions on tankers involved in the flow of Iranian oil, tightening shipping capacity."
She noted that this situation is particularly severe during the second leg of journeys, where ships in the Greater Singapore region transfer cargo from Iran to China. She added that floating storage in the region has been increasing over the past three weeks.
Xu said that Washington has sanctioned 45 of the 147 tankers involved in transporting Iranian crude this year.
Shipping data from the London Stock Exchange Group (LSEG) shows that several sanctioned Very Large Crude Carriers (VLCCs), including the FT Island, Vanity, and Elva, are floating near Malaysian waters. The VLCC Ceres I, which collided near Singapore in July, has also been designated as one of these tankers and previously delivered Iranian oil to China.
The LSEG data further indicates that another sanctioned tanker, "Phoenix," departed China on Friday. Trade sources said this VLCC had unloaded cargo at Rizhao Port in Shandong Province.
Demand Recovery
Analysts note that Iranian oil prices have also been partially supported by a recovery in Chinese demand, as independent refiners increased crude purchases after receiving additional import quotas from the government and slightly raised fuel production.
A survey by consultancy JLC revealed that in Shandong Province, the hub of independent refineries, operating rates have slightly risen since mid-November, following production cuts in October due to low profit margins.
According to JLC, despite the rise in Iranian oil prices, the processing profit for imported crude turned positive at 123 yuan ($16.93) per ton in the week ending December 11, after losses in October and November.
Consulting firm Oilchem noted that gasoline and diesel shipments from Shandong to other Chinese ports in November hit a three-year high, marking another sign of improving demand.
China's crude oil imports in November recorded their first year-on-year growth in seven months, driven by lower prices and rising inventories.
