(Bloomberg) — Private oil refiners in China say Iranian sellers are seeking to raise their prices by offering narrower discounts, at a time of elevated tensions in the Middle East that have global investors on edge.
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So-called teapots received offers for Iranian Light and Iranian Heavy crudes at $1-a-barrel more than in previous months, according to people with knowledge of the matter, who asked not to be identified as they’re not authorized to speak publicly. At present, sellers and buyers are at a standoff.
Refiners in China are a vital outlet for Iranian flows as US sanctions have shrunk the pool of purchasers. That’s created a symbiotic relationship between the Chinese importers — who want access to discounted oil to maintain their profits — and sellers, who have few alternative takers. It’s unclear if the dispute would affect the continuation of flows between the two nations.
The standoff comes with Israel vowing to retaliate against Iran for a recent missile strike. While US President Joe Biden has counseled against hitting energy infrastructure, investors remain concerned that the possibility remains. Israel’s Defense Minister, Yoav Gallant, said this week that the nation’s impending strike “will be deadly, precise and above all surprising.”
Iran is the third-largest crude producer in the Organization of the Petroleum Exporting Countries. Last month, the country pumped about 3.3 million barrels a day, with approximately half of that volume being shipped overseas, according to tanker-tracking data compiled by Bloomberg.
Chinese refiners said they were unsure why offers have become more expensive, although freight costs have jumped in recent weeks after rising tensions prompted some Iranian vessels to temporarily flee Iran’s busiest export terminals. Separately, the risk of Israel targeting facilities may have prompted teapots to request more cargoes before any possible supply curtailments, causing a rush that’s elevated near-term demand.
Iranian crudes are typically sold at a differential to Brent futures on a delivered basis to Chinese terminals, inclusive of costs such as freight, insurance and port charges. In recent cases, Iranian Light and Iranian Heavy have been offered at discounts of about $3.50 and $7.50 a barrel to ICE Brent, respectively.
The narrower differentials are coming on the back of stark warnings of the fallout from any possible strike. In recent days, both Goldman Sachs Group Inc. and hedge fund manager Pierre Andurand have predicted a spike of up to $20-a-barrel should Israel hit Iranian export facilities. Brent breached $80 a barrel last week before declining, and traded near $77 on Thursday.
Sellers and buyers of Iranian crude were also locked in negotiations earlier this year, when offer levels were raised for shipments due to land in China in the second quarter. After that holdout, it was the sellers that ultimately yielded.
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