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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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U.S. Sanction Waivers Boost China’s Demand For Iranian Oil

Iran’s largest oil customer China is set to continue importing robust volumes of Iranian crude at least through the end of this year thanks to the U.S. waivers to eight countries that will allow them to keep importing oil from Tehran at reduced volumes until early May next year.

To be sure, even before the U.S. granted the waivers, China was thought to be pretty much the only certain Iranian oil customer to continue importing oil from Iran after the U.S. sanctions returned on November 5.

It looks like Chinese imports of Iranian oil will be kind of ‘business as usual’ in the fourth quarter, with trade flow estimates showing that China’s demand for Iranian oil has not waned. On the contrary, more barrels went into storage in China over the past two months—a sign that the Chinese may have decided to stockpile some Iranian crude before there was any clarity over who’s getting those U.S. waivers.

China’s oil imports from Iran increased by 4.1 percent annually to average 631,556 bpd between January and September, and Tehran was the fifth-largest oil supplier to the world’s top oil importer, official Chinese data shows.

After somewhat reduced import volumes in September, China’s oil intake in October and November is seen rebounding, according to trade flow data from S&P Global Platts.

China’s General Administration of Customs data showed that September oil imports from Iran averaged 520,630 bpd—around 100,000 bpd lower than the average intake for January-September. Related: Why Aramco Abandoned The $40 Billion Bond Sale

Yet, S&P Global Platts trade tracking shows that Chinese imports from Iran were 599,000 bpd in October and could reach 646,000 bpd in November. Many of the October and November barrels are bound for the Liaoning province, where refiners don’t typically process Iranian crude, but where the National Iranian Oil Company (NIOC) has leased some storage capacity, according to Platts data.

China’s total crude oil imports in October hit a record-high, beating the previous all-time high set in April this year, according to official Chinese data. The breakdown by countries is expected to be provided later this month, but preliminary trade flow data shows that the all-time high

October imports were driven by two key factors—high intake from China’s independent refiners and high volume of Iranian imports just before the U.S. sanctions snapped and before there was any clarity over the waivers.

While Chinese demand for Iranian oil is expected to remain steady by the end of the year at least, demand for oil from another top 10 Chinese supplier—the United States—is plunging, due to the U.S.-China trade war. Despite the fact that U.S. crude oil is not on China’s tariff list, Chinese appetite for American crude oil has significantly waned since July.

According to EIA data, the U.S. didn’t export any crude oil to China in August, compared to 384,000 bpd in July and a record-high 510,000 bpd in June. Related: Is There Any Hope Left For Oil Bulls?

After August, the trend for zero Chinese imports from the U.S. continued in September, data from international shipping association BIMCO and U.S. Census Bureau showed. Last year, crude oil sales to China accounted for 23 percent of all U.S. crude oil exports. Between January and July 2018, this share was 22 percent, before the zero U.S. exports to China in August and September.

“The trade war between the US and China is now impacting trade in both tariffed and some un-tariffed goods with both countries looking elsewhere for alternative buyers and sellers,” says Peter Sand, Chief Shipping Analyst at BIMCO.

While the U.S. is dropping from the list of Chinese oil suppliers, there has been no surprise at the top—Russia has consolidated its position of China’s biggest oil supplier ahead of number-two Saudi Arabia.

Chinese purchases of Russian oil jumped to an all-time high of 1.66 million bpd in September, according to Chinese customs data, while imports from Saudi Arabia averaged 924,552 bpd. Russia’s ESPO crude is a top pick among Chinese independent refiners, while state-held PetroChina has significantly raised ESPO imports since a second Russia-China oil pipeline started operations earlier this year.

Saudi oil sales to China are expected to rebound in the fourth quarter. According to Platts trade flow data, October imports were 1.1 million bpd, while November purchases are seen at 1.16 million bpd. Chinese refiners will move in Q4 to fulfill their 2018 term contracts with Saudi Arabia and to replace declines from other suppliers, trade sources tell Platts.

Also thanks to the U.S. waiver, China’s oil imports from Iran are set for steady volumes this quarter. The biggest shift in Chinese oil imports this year was actually the result of another U.S. policy—the trade war.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on November 22 2018 said:
    Your article contains some laughable statements. First China doesn’t need a waiver from the United States to continue buying Iranian crude. China is an economic superpower in its own right and a nuclear power to boot. It is not Djibouti. It will defy US sanctions on Iran at well.

    What you don’t seem to understand is that the whole US sanction regime is at the mercy of China and the petro-yuan. China could singlehandedly nullify US sanctions by buying the entire Iranian crude oil exports estimated at 2.2 million barrels a day (mbd) and paying for them in petro-yuan. For the time being, China is slowly increasing its purchases of Iranian crude. But if no breakthrough is achieved over the escalating US trade war on China during the coming meeting this month between President Trump and the Chinese leader, you can be sure that China will just do exactly that in retaliation against the US.

    The issuing of sanction waivers to eight countries who didn’t need them in the first place and who would have continued to buy Iranian crude with or without the waivers is the clearest admission by the Trump administration that their zero option is out of reach and that sanctions are doomed to fail. Moreover, the eight recipients of the waivers have neither increased nor decreased their purchases of Iranian crude as a result of the waivers.

    China’s thirst for oil is unabated. I project that China’s oil imports this year will exceed 10 mbd easily and could hit even 11 mbd. Part of these imports will go to build up China’s strategic petroleum reserve.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • EHLipton on December 02 2018 said:
    SO WHAT! Geez, kind of reminds me of one of neighbors down across the road,
    always meddling in some one else affairs! How about we do as the leader ship prior to the Obama administration said we needed to do,, BECOME ENERGY INDEPENDENT from FOREIGN OIL! We need to mind OUR OWN COUNTRY AFFAIRS,, pay back the taxpayer for all the subsidy and bail outs of these money Titans. Quit trying to control the narrative of other countries economic decisions, and mind our OWN!
    One more thing,, you want to create a war for your personal Gain,, You pay for it, and,,, YOU SHED YOUR BLOOD FIGHTING IT! Just my buck $.29 cent's worth!

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