Russian, Iranian oil sellers boost prices as Venezuelan crude rallies
Sellers of sanctioned oil from Russia and Iran are hiking offer prices to China after Venezuelan crude rallied following the suspension of US sanctions on the South American producer, trade sources said.
Washington’s six-month waiver of sanctions on Venezuela has intensified competition for the OPEC producer’s heavy oil, lifting prices and reducing supply to top buyer China, Reuters reported.
That has forced some Chinese independent refiners, known as teapots, to seek the next-cheapest oil with demand expected to rebound in early 2024 when Beijing issues new annual import quotas.
This could help boost oil revenues for Moscow and Tehran and lessen the impact of sanctions imposed by the US.
“Iran and Russia have seized a good timing to hike prices, which will undoubtedly help them to increase their revenues,” a China-based trader said.
In two months, discounts for Venezuelan crude delivered to China have narrowed to $11 per barrel, from $20, below benchmark ICE Brent, slowing demand from teapots, while Indian refiners and international trading houses such as Vitol, Gunvor and Trafigura have resumed purchases with the lifting of sanctions.
So far, only one deal for Venezuelan crude to China in January has been spotted, two Chinese market sources said, at a discount of $11 a barrel against ICE Brent on a delivered basis.
That compares with discounts as deep as $14 a month earlier, and around $20 when the US sanctions were in place.
“People chose Venezuelan crude mainly for its low prices,” said another China-based trader. “Very few refiners are willing to pay such high prices for such low quality crude.”
The price surge for Venezuelan oils has deterred Chinese buyers struggling with thin margins and limited crude import quotas, pushing them towards the Russian and Iranian grades.
ESPO Blend oil cargoes loading in January traded at parity to a premium of 10-30 cents per barrel to ICE Brent at Chinese ports on a delivered basis, according to the traders, rebounding from small discounts for December-loading cargoes.
“Chinese demand is back. They actively ask for ESPO, and Urals is also considered,” said one Russian oil seller.
High freight costs on trans-Pacific routes also improved demand for ESPO, which is exported from the Far East Russia port of Kozmino, a short distance from China, the seller said.
The bullish sentiment also buoyed demand and prices for Iranian oil, traders said. Iranian oil discounts narrowed sharply to $6 a barrel against ICE Brent, from $13 a barrel two months ago, they said.