China’s Mega Refiners Rush for Oil to Avert Sanctions Disruption

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(Bloomberg) — China’s state oil companies and large private refiners are snapping up crude cargoes from the Middle East and elsewhere, hastening preparation for potential disruption in fuel supply as tighter sanctions on Russia and Iran threaten to curb near-term crude flows.

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Companies including Cnooc, Shandong Yulong Petrochemical Co and Jiangsu Eastern Shenghong Co are sending out urgent inquiries to buy crude for prompt delivery, traders said on Tuesday, adding multiple grades were being considered, from the Middle East, Africa and the Americas. Cargoes for February are particularly in demand, they said.

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The move from some of China’s biggest oil buyers stems from concerns that small private refiners — already under pressure — could be forced to slash operating rates and cut back fuel output if they no longer have access to discounted Russian and Iranian crude. Most of the so-called teapots, clustered around the eastern province of Shandong, were navigating declining margins well before Washington’s latest curbs were announced on Friday.

If small players falter, larger state refiners expect they will need to step in to prevent a domestic shortfall of fuels such as diesel — taking up market share but crucially guaranteeing energy security, a major concern for Beijing.

Washington’s latest round of sanctions affects more than 180 tankers and some of Russia’s biggest crude producers. The measures have reverberated across the Asian oil market, with buyers, shippers and port operators scrambling to manage the fallout. Already, some sanctioned vessels carrying Russian ESPO crude to Shandong have started to idle or anchor off China as shippers consider their next steps. 

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Spot crude buying interest among Chinese importers has been slowly strengthening over the past two months, after Iran increased offer prices for its crudes. But the urgency has ratcheted up this week, following a long list of US measures that aims squarely at the dark fleet tasked with ferrying sensitive cargoes across the world. 

This week, TotalEnergies SE sold prompt cargoes of Oman and UAE’s Upper Zakum crude to buyers including Cnooc and Rongsheng Petrochemical Co., and offered Brazilian supplies of Lapa on Tuesday. Spot premiums for Oman crude, a medium-sour grade that’s widely referenced and traded across the world, surged to almost $3 a barrel this week from $1.50-$1.70 last week. Supertanker rates for the Middle East to China route have also surged. 

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