As a key ally gains a stronger foothold in the main Chinese market, Iran is being forced to discount its already cheap crude even further, Bloomberg reported.
As a result of the fallout from Russia’s invasion of Ukraine, China has become an imperative destination for Russian oil. As a result, Iran is facing increased competition in one of the few remaining markets for its crude shipments, which have been severely restricted by US sanctions.
Russian exports to China reached a new high in May, with the OPEC+ producer surpassing its cartel ally Saudi Arabia as the world’s largest importer. While Iran has reduced its oil prices in order to remain competitive in the Chinese market, it is still maintaining robust flows, which are likely due to rising demand as China relaxes strict virus restrictions that had crushed consumption.
“The only competition between Iranian and Russian barrels may end up being in China, which would work entirely to Beijing’s advantage,” said Vandana Hari, founder of Vanda Insights in Singapore. “This is also likely to make the Gulf producers uneasy, seeing their prized markets taken over by heavily discounted crude.”
China’s official data only shows three months of Iranian imports since the end of 2020, including January and May of this year, but third-party data show a steady flow of crude. According to Kpler, after a slight decrease in April, imports have increased to over 700,000 barrels per day in May and June. However, according to industry consultant FGE, Russian Urals have displaced some Iranian barrels.
According to traders, Iranian oil has been priced nearly $10 per barrel further down Brent futures, putting it on equivalence with Urals cargoes to arrive in China in August. This compares to a $4 to $5 discount prior to the incursion. The light and heavy grades in Iran are most similar to Urals.
