U.S. Sanction Waivers Boost China’s Demand For Iranian Oil

Iran’s largest oil customer China is set to continue importing robust volumes of Iranian crude at least through the end of this year thanks to the U.S. waivers to eight countries that will allow them to keep importing oil from Tehran at reduced volumes until early May next year.

To be sure, even before the U.S. granted the waivers, China was thought to be pretty much the only certain Iranian oil customer to continue importing oil from Iran after the U.S. sanctions returned on November 5.

It looks like Chinese imports of Iranian oil will be kind of ‘business as usual’ in the fourth quarter, with trade flow estimates showing that China’s demand for Iranian oil has not waned. On the contrary, more barrels went into storage in China over the past two months—a sign that the Chinese may have decided to stockpile some Iranian crude before there was any clarity over who’s getting those U.S. waivers.

China’s oil imports from Iran increased by 4.1 percent annually to average 631,556 bpd between January and September, and Tehran was the fifth-largest oil supplier to the world’s top oil importer, official Chinese data shows.

After somewhat reduced import volumes in September, China’s oil intake in October and November is seen rebounding, according to trade flow data from S&P Global Platts.

China’s General Administration of Customs data showed that September oil imports from Iran averaged 520,630 bpd—around 100,000 bpd lower than the average intake for January-September.

Yet, S&P Global Platts trade tracking shows that Chinese imports from Iran were 599,000 bpd in October and could reach 646,000 bpd in November. Many of the October and November barrels are bound for the Liaoning province, where refiners don’t typically process Iranian crude, but where the National Iranian Oil Company (NIOC) has leased some storage capacity, according to Platts data.

China’s total crude oil imports in October hit a record-high, beating the previous all-time high set in April this year, according to official Chinese data. The breakdown by countries is expected to be provided later this month, but preliminary trade flow data shows that the all-time high

October imports were driven by two key factors—high intake from China’s independent refiners and high volume of Iranian imports just before the U.S. sanctions snapped and before there was any clarity over the waivers.

While Chinese demand for Iranian oil is expected to remain steady by the end of the year at least, demand for oil from another top 10 Chinese supplier—the United States—is plunging, due to the U.S.-China trade war. Despite the fact that U.S. crude oil is not on China’s tariff list, Chinese appetite for American crude oil has significantly waned since July.

According to EIA data, the U.S. didn’t export any crude oil to China in August, compared to 384,000 bpd in July and a record-high 510,000 bpd in June.

After August, the trend for zero Chinese imports from the U.S. continued in September, data from international shipping association BIMCO and U.S. Census Bureau showed. Last year, crude oil sales to China accounted for 23 percent of all U.S. crude oil exports. Between January and July 2018, this share was 22 percent, before the zero U.S. exports to China in August and September.

“The trade war between the US and China is now impacting trade in both tariffed and some un-tariffed goods with both countries looking elsewhere for alternative buyers and sellers,” says Peter Sand, Chief Shipping Analyst at BIMCO.

While the U.S. is dropping from the list of Chinese oil suppliers, there has been no surprise at the top—Russia has consolidated its position of China’s biggest oil supplier ahead of number-two Saudi Arabia.

Chinese purchases of Russian oil jumped to an all-time high of 1.66 million bpd in September, according to Chinese customs data, while imports from Saudi Arabia averaged 924,552 bpd. Russia’s ESPO crude is a top pick among Chinese independent refiners, while state-held PetroChina has significantly raised ESPO imports since a second Russia-China oil pipeline started operations earlier this year.

Saudi oil sales to China are expected to rebound in the fourth quarter. According to Platts trade flow data, October imports were 1.1 million bpd, while November purchases are seen at 1.16 million bpd. Chinese refiners will move in Q4 to fulfill their 2018 term contracts with Saudi Arabia and to replace declines from other suppliers, trade sources tell Platts.

Also thanks to the U.S. waiver, China’s oil imports from Iran are set for steady volumes this quarter. The biggest shift in Chinese oil imports this year was actually the result of another U.S. policy—the trade war.

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