The amount of oil held in floating storage at Asian ports is growing, with Iranian and Venezuelan crude cargoes earlier this month pushing Asian floating inventories to the highest in three months, according to data from energy intelligence provider Kpler, as quoted by Bloomberg.
The glut follows China’s crackdown on independent refiners—the so-called teapots—which have come to account for a solid portion of total Chinese crude oil imports. This year, however, Beijing has targeted the independent refiners with tax evasion claims, environmental violations investigations, and production curbs amid excessive production of fuels that has pressured margins for all refiners in the country.
This environment in China suggests that the 62 million barrels of crude—per Kpler—sitting at Asian ports as of last week will have trouble finding a home.
“These barrels sitting off Southeast Asia are distressed,” Anoop Singh, head of East of Suez tanker research at Braemar ACM Shipbroking, told Bloomberg. “They’re going to have a tough time finding homes other than China, unless the situation surrounding the U.S. sanctions changes dramatically, or China’s clampdown on its independents is eased.”
Yet, the clampdown on independent refiners was not the only factor contributing to the glut. China also introduced additional import taxes on some oil products that immediately damaged demand for these products, which included bitumen mixture. Bloomberg noted that the mixture is often used to mask Venezuelan and Iranian oil cargos, and now that demand for bitumen has crashed, the cargos are sitting unsold.
Data from Vortexa shows there were 29 oil tankers idling at Chinese ports, with a fifth of these believed to be loaded with Iranian and Venezuelan crude since China is the principal destination for both sanctioned countries. Imports of crude oil in China fell for the second month in a row in July, by a hefty 20 percent on the year, according to the latest customs data cited by Nikkei Asia.
By Irina Slav for Oilprice.com
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For a global economy growing this year at 6.3%, 62 million barrels of oil are a small bubble when compared with a global glut that exceeded 1.4 billion barrels at the height of the pandemic in 2020.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London