Iran’s crude oil shipments to China are now priced at the smallest discount to Brent crude in five years, as exports dropped last month due to concerns over potential Israeli attacks on Iran’s energy infrastructure.
The discount for Iran Light crude to ICE Brent has narrowed to under $4 per barrel, down from $5-$6 earlier this year, according to trading and refinery sources who spoke to Reuters.
The price increase comes amid reduced cargo availability, as Iran slowed down loadings in the first half of October, fearing Israeli retaliation after Iran launched a missile strike on Israel on October 1. Early last month, Iranian oil tankers were seen leaving Kharg Island, the country’s largest oil export terminal, amid heightened fears of an Israeli attack on this crucial crude export facility.
Reports also surfaced in October suggesting that Iran is offering its oil to China’s independent refiners at smaller discounts to Brent. This reflects a shift as Iranian sellers push for higher prices on oil destined for China, the world’s largest crude importer.
China’s private refiners, known as “teapots,” are key buyers of Iranian crude, which is typically shunned by most other countries due to sanctions. The two nations have developed a mutually beneficial trade relationship: Iran is able to sell its crude, while China’s refiners obtain cheaper oil.
However, with Iranian prices rising due to limited loadings, China’s independent refiners may cut back on processing rates towards the end of the year. Their refining margins are already low, and even with the relatively cheaper Iranian crude, they are struggling to maintain profitability.
In response to the rising prices, reports indicate that recent deals were made at discounts of $3 and $3.80 per barrel to Brent on a delivered, ex-ship (DES) basis, according to Reuters sources.
“There are very few offers for November or December deliveries as we heard about loading issues on the Iranian side,” a trading manager at an independent refiner in Shandong told Reuters.
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