Iranian Oil Cargoes Build Up as Chinese Refiners Shift to Cheaper Gulf Supplies

Iran is facing growing pressure in its oil export market as crude cargoes continue to accumulate at sea following a recent increase in shipments during an interim peace arrangement with the United States. At the same time, demand from China’s independent refiners has weakened as buyers increasingly turn to lower-priced crude from Iraq, the United Arab Emirates and Qatar.

The latest shift comes as Washington has reimposed sanctions on Tehran, raising concerns that more Iranian cargoes could struggle to find buyers as additional shipments reach Asian markets in the coming weeks.

According to traders, China’s independent refiners, commonly known as “teapots” and largely based in Shandong province, purchased between 16 million and 20.5 million barrels of crude from Qatar, Iraq and the UAE in recent weeks. The purchases represent the largest volume of non-sanctioned Middle Eastern oil bought by these refiners since the conflict in the region began.

Another privately owned Chinese refiner, Shenghong Petrochemical, also secured around 12 million barrels of crude from Iraq, Abu Dhabi and Saudi Arabia, according to a trader familiar with the transactions.

Independent refiners account for most of China’s imports of Iranian crude because major state-owned refiners have largely avoided direct purchases since US sanctions were reinstated in 2018.

The arrival of larger volumes of oil from other Gulf producers has reduced demand for Iranian cargoes. Traders said European commodity firms, including Mercuria and Vitol, along with PetroChina International, Zhenhua Oil and Abu Dhabi National Oil Co., have been offering August and September deliveries at discounts of $5 to $8 per barrel against ICE Brent.

By comparison, Iranian Light crude has continued to trade at only $2 to $3 below ICE Brent, making it less attractive to buyers. Two traders described Iranian sellers as reluctant to reduce prices despite weaker demand, with one senior trader remarking that Iranian crude had become the most expensive option among comparable regional grades.

Market activity was also slowed by the official mourning period following the funeral of Iran’s Supreme Leader Ayatollah Ali Khamenei, as many offices remained closed during the ceremonies.

Shipping activity has remained active despite renewed regional tensions. Data from Vortexa Analytics showed that about 30 million barrels of Iranian crude were loaded between June 15 and July 6, averaging roughly 1.35 million barrels per day. Kpler estimated that 34.5 million barrels crossed the Strait of Hormuz aboard 21 tankers between June 14 and July 10.

Research by United Against Nuclear Iran estimated that 52 tankers carrying about 62 million barrels of Iranian crude and petroleum products departed after the ceasefire announced on June 14. Fifteen of those vessels have reached the Singapore Strait and are heading toward storage and transfer facilities near Malaysia, while three Iranian-operated very large crude carriers have already unloaded their cargoes.

China’s imports of Iranian crude have fallen to about 556,000 barrels per day so far this month, according to Kpler, marking the country’s lowest level of purchases since January 2023. Traders expect sales of Iranian oil to improve next week if exporters offer larger price discounts of between $4 and $5 per barrel for cargoes arriving in August and September.