As China buys Russian crude in large volumes, Iran is being forced to cut down its oil prices which are already cheap, news agency Bloomberg news reported.
Moscow is dependent on China as sanctions have crippled the outflow of Russian oil to the world energy market. This led to competition with Iran, an ally of Russia, which itself is under large US sanctions and less destinations to send their crude to.
Russia exported record shipments to oil in June, breaching past Saudi Arabia which was the top supplier to the world’s biggest importer. Iran slashed oil prices to remain in competition in the market in China as demand in China is expected to rise following the easing of strict virus restrictions.
Vandana Hari, founder of Vanda Insights in Singapore, told news agency Bloomberg News that Gulf producers will feel uneasy seeing their prized markets being overrun with ‘heavily discounted crude’.
Whether Joe Biden, the US president due to travel to West Asia later in July, will capitalize on this to force the UAE and Saudi Arabia to side with the US against Russia, remains to be seen.
Chinese data shows only three months of Iranian crude imports since the end of 2020. Iran sent crude to China in January and May but third-party sources like Kpler said China received steady flow of Iranian oil.
China imported over 700,000 barrels a day in May and June, Kpler said and Facts Global Energy (FGE) said crude from Russian Ural has displaced some Iranian oil flows.
Iran priced its crude at nearly $10 a barrel below Brent futures to bring it on par with crude from the Urals which are scheduled to arrive in China in August, traders told news agency Bloomberg. Prior to the invasion there were also discounts of about $4 to $5.
Independent refiners in China are some of the major buyers of Russian and Iranian crudes. Cheap supplies are necessary for them as they face constraints due to rules around fuel exports unlike state-run processors.
These refiners are also known as teapots and are not given quotas to ship fuel to overseas markets. They are forced to supply to the domestic market and have faced losses on refining in the recent months due to lockdowns in China crippling demand.
However, China readily taking discounted oil being made available to it by Russia means flows from other suppliers are now reducing.
(with inputs from Bloomberg)
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