China's Iranian crude imports find new market in northeast - Reuters

Reuters Exclusive - Imports of Iranian crude have been flowing into the port and refining city of Dalian since late last year, tanker tracking firms and trading sources said, helping sustain the country's purchases of the oil at near record levels.

The shift has happened as demand for Iranian crude from small buyers in the independent refining hub of Shandong province has waned in the face of deteriorating refining margins, squeezed by higher crude prices but weaker-than-expected fuel demand, traders said. They have been Iran's main buyers in China since 2019.

Iran, including its oil, is subject to US sanctions, reinstated in 2018 over concerns about its nuclear program. But China did not stop buying Iranian oil, with margin-driven independent plants filling a vacuum left by sanctions-wary state firms, Reuters has reported.

Vortexa, a consultancy that tracks tanker flows, said 23 cargoes, or a total of 45 million barrels, of Iranian oil was discharged at Dalian between October 2023 and June 2024.

It said this included 28 million barrels discharged at Changxing island, about 85 km (53 miles) northwest of central Dalian.

Another consultancy, Kpler, estimated China imported 34 million barrels into Dalian during the same period.The figures equate to 124,000-164,000 barrels per day, roughly 13% of China's total Iranian oil imports during the first half of 2024.Analysts estimate China imported 1.2-1.4 million bpd of Iranian crude during the period. Vortexa said the imports hit a record 1.52 million bpd last October.

When asked about the Dalian imports, China's foreign ministry told Reuters that China and Iran "have always maintained normal and legitimate trade under the international legal framework."China says it opposes unilateral sanctions. Still, tanker trackers and dealers say that traders rebrand Iranian oil destined for China as originating from elsewhere, such as Malaysia, Oman or the United Arab Emirates.

Officially, Chinese customs have not reported any imports of Iranian oil since June 2022.

There are four possible destinations for the Dalian shipments - Hengli Petrochemical's 400,000-bpd refinery complex and 44 million-barrel storage farm, two refineries run by state-giant PetroChina, and a 30 million-barrel storage base operated by the Liaoning Port Authority at Changxing island.

There is no pipeline connecting the storage facility to refineries outside Dalian, traders said.

Three senior trading sources close to Hengli said the company bought at least some of the shipments.

One of the sources estimated Hengli had bought 4 million barrels a month during the first few months of 2024. Another said the purchases were 4-6 million barrels a month.

Vortexa said Hengli was a buyer of Iranian crude shipments, based on its tanker tracking information and analysis.

A Hengli spokesperson said the company had not bought Iranian oil.

PetroChina, like China's other big state crude buyers, stopped buying Iranian oil around 2018/2019, traders and other industry experts have said.

PetroChina, Asia's largest oil-and-gas producer, did not respond to a request for comment.

The Liaoning Port Group and its unit Liaoning Port Co Ltd did not respond to emailed requests seeking comment.

Before last October, Dalian, which accounts for 6% of China's crude processing capacity, had received only sporadic Iranian oil shipments in recent years, according to Vortexa and Kpler.

Iranian oil is attractive to refiners due to steep discounts relative to similar Middle Eastern grades, such as Oman or Murban, or Russia's main export grade ESPO Blend.

(Report by Reuters)