China is taking advantage of steep discounts for Iranian and Venezuelan crude to increase its imports from the two countries sanctioned by the United States, Bloomberg reports, adding that prices for Iranian and Venezuelan oil are at their lowest since November 2017.
From Iran, China has been importing an average of 446,000 bpd, which is substantially higher than the amount Washington agreed to let it import under the sanction waivers it granted eight large Iranian oil buyers in November. However, the 360,000-bpd allowance does not take into account oil produced by Chinese companies taking part in the development of Iranian oil fields.
As for Venezuela, Chinese oil buyers are not subject to sanctions that Washington imposed on state oil company PDVSA in January, so theoretically, they can continue buying as much Venezuelan crude as they like. However, one of their Indian counterparts, Reliance Industries, has stopped importing Venezuelan crude because of its exposure to the U.S. financial system, just in case. Chinese companies also have exposure to this system.
Last month, Chinese traders and refiners bought some 531,000 bpd of Venezuelan crude, which was 17 percent more than they bought in January and the highest since December 2017.
One analyst from the Shanghai-based unit of commodity research firm ICIS-China told Bloomberg it’s mostly about the price.
“Increased purchases from Venezuela may very likely be due to cost concerns,” Li Li said, adding that state oil buyers in China could resell the cheap crude to independent refiners at a profit.
However, there is also the grade consideration: Venezuela is a large producer of heavy oil and Iran also produces heavy grades. The sanctions have shrunk heavy crude supply and has pushed prices a lot higher than normal, so, said Li, “As heavy oil gets more expensive, China of course wants to secure as much of cheap supplies as possible, especially from those who are friends with China.”