A hoard of Iranian crude on tankers at sea and robust onshore stockpiles in China will provide a cushion for the nation’s independent refiners should a US blockade of the Strait of Hormuz choke off flows.
There are about 38 million barrels of Iranian oil on vessels in Asia, with more than a third of the ships anchored in the Yellow Sea off the Chinese coast, data compiled by Kpler Ltd. shows. Overall crude inventories in Shandong province — home to most of the country’s independent processors known as teapots — have also swelled and are near the highest this year, according to OilChem.
The US implemented a blockade of ships heading for or leaving Iran’s Persian Gulf ports or coastal areas on Monday after talks over the weekend between Washington and Tehran failed to reach an agreement, escalating the conflict that’s roiled energy markets. China’s teapots have been the biggest buyers of Iranian oil, with the cheaper barrels helping to offset thin margins.
Iranian crude stored at sea provides teapots with about two-and-a-half months of supply, said Emma Li, the Singapore-based lead China market analyst at Vortexa Ltd. The nation’s imports from the Islamic Republic climbed to a record 1.8 million barrels a day last month, she added.
Beijing recently granted teapots additional crude import quota to allow them to keep producing fuels, helping to cushion the impact from disrupted supplies from the Persian Gulf. Still, a prolonged US blockade could complicate those energy security efforts should Iranian flows dwindle.
Teapots have relied on cheaper crude from Iran, Russia, and Venezuela to keep their operations going, but that pool shrunk after US intervention in Venezuela earlier this year. Prices for Iranian Light have also climbed since the war began at the end of February, with the grade recently offered at a small premium to ICE Brent, compared with discounts of as much as $10 a barrel prior to the conflict, said traders who participate in the market.
Even as the US implemented its blockade of Hormuz, Washington and Iran are weighing another round of talks to secure a longer-term ceasefire. The goal is to hold them before the expiration of a two-week pause in hostilities that was announced April 7, according to people familiar with the matter.
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