China’s independent refiners swtich to Iraqi crude as US blocks Iran supplies

China's privately-owned refiners are turning to Iraqi crude oil following a US blockade that has halted Iranian supplies, their usual source. While state-owned refiners have secured the limited Russian crude available, independent processors are scrambling to secure alternative supplies. Private refiners in Shandong province, including smaller teapot refiners, purchased Iraq's Basrah Heavy and Basrah Medium grades for November delivery at prices up to $18 per barrel above ICE Brent.

This shift indicates an urgent demand for immediate supplies rather than a surge in Chinese oil demand. Around 50 tankers, mainly carrying Iranian crude, remain stuck off China's coast due to the US blockade, intended to pressure Iran into accepting terms favorable to Washington. State-owned refiners are primarily securing Russian crude, which has increased costs for independent processors.

Some Shandong teapot refineries could run out of inventory by the end of the month and may need to compete for the limited alternatives available. To prevent shutdowns or significant reductions in production, these refiners must acquire alternative supplies promptly. The supply shortage has drawn some processors toward sulfur-rich Basrah crude, which they usually avoid in favor of cheaper Iranian barrels and diesel-rich ESPO from Russia's Far East.

As Gulf producers are exporting more oil through the Strait of Hormuz, Iraqi crude is becoming more accessible. Large discounts are being offered by Gulf producers to maintain market share following Saudi Aramco's price reductions for its flagship grade intended for Asian buyers. Iranian barrels previously supplied over 1 million barrels per day to China's independent refiners, with private processors being the main buyers due to favorable prices and improved refining margins.