Chinese oil companies and private refiners have started increasing crude oil purchases from the Middle East, Africa and the Americas to mitigate the effect of sanctions on operations.
The decision was made after additional sanctions were imposed on Russia and Iran to curb their revenue generation in order to limit their abilities to support wars in Ukraine and the Middle East, respectively.
Traders are saying Cnooc, Shandong Yulong Petrochemical Co, and Jiangsu Eastern Shenghong Co have started issuing urgent inquiries for crude cargo delivery.
According to sources, February cargoes are particularly in high demand with buyers exploring multiple crude grades to meet their supply needs.
This urgency stems from fears that smaller private refiners may be forced to cut operating rates and reduce fuel output due to dwindling access to discounted Russian and Iranian crude when sanctions effect crystalises.
These refiners face increased pressure following Washington’s latest round of sanctions announced last week.
“If small players falter, larger state refiners expect they will need to step in to prevent a domestic shortfall of fuels such as diesel,” one trader noted.
The sanctions target more than 180 tankers and several of Russia’s largest crude producers, creating ripples across the Asian oil market. Sanctioned vessels carrying Russian ESPO crude to Shandong have started to idle or anchor off China as shippers evaluate their options.
Spot crude buying interest among Chinese importers has been gradually increasing over the past two months, partially fueled by rising offer prices for Iranian crude.
However, the urgency has spiked this week following the latest US measures, which aim directly at the so-called dark fleet tasked with transporting sensitive cargoes.
This week, TotalEnergies SE sold prompt cargoes of Oman and UAE’s Upper Zakum crude to buyers including Cnooc and Rongsheng Petrochemical Co.
Spot premiums for Oman crude surged to almost $3 a barrel this week from $1.50-$1.70 last week.
Shipping costs have also increased with supertanker rates on the Middle East to China route seeing a notable rise.
