Chinese refiners shift to Iraqi and Qatari crude amid Iranian supply drop

Chinese independent refiners are turning to Iraq and Qatar to replace declining Iranian crude supplies, as exports from other Gulf producers through the Strait of Hormuz rebound. Traders report that refiners have secured at least 12 million barrels of Iraqi and Qatari crude for October and November delivery, with estimates suggesting total purchases could reach 15 to 20 million barrels. The cargoes were acquired at premiums of $12 to $20 per barrel above the ICE Brent benchmark, with most purchases being Iraqi Basra Medium and Heavy crude, known for their affordability and availability.

Among the buyers are prominent refiners like Hongrun Petrochemical, Qicheng Petrochemical, and Qirun Petrochemical. Additionally, Hongrun and Shenchi Petrochemical purchased 3 million barrels of Qatar’s al-Shaheen crude for early November arrival. These deals follow earlier purchases of over 20 million barrels from West Africa, Canada, and Colombia as Iranian supply dwindled due to a U.S. naval blockade imposed in July.

China’s imports of Iranian oil have plummeted, nearly halving in September compared to the previous year, reaching the lowest level since January 2023. According to Kpler, Iranian crude stored on vessels outside the blockade zone has dropped from 100 million barrels in late July to 45 million barrels, with no Iranian crude exports recorded in September for the first time since 2013.

As exports through the Strait of Hormuz recover, trading houses have lowered offer prices to boost demand. However, refinery utilization rates in Shandong have fallen to about 55% by late September, down from nearly 60% at the start of the month, as margins weakened due to surging crude costs and capped fuel price increases. Refiners are now facing losses of 250 to 500 yuan per metric ton, a stark contrast to the profits of about 500 yuan per ton seen earlier in September.