• The prices of a popular Russian crude oil sold to China are expected to reach their peak soon. This is due to the increasing number of independent refiners switching to cheaper oil from Iran, which has significantly increased its exports in August. The combination of OPEC+ supply cuts and the high demand from Chinese refiners for Russian oil has led to the ESPO Blend grade being sold at the narrowest discounts since the start of the Ukraine war. The trade for the light sweet crude for October arrival began this week, with the first deal being done at a discount of approximately $1 per barrel to ICE Brent on a deliver-ex-ship basis (DES) to China.
• This is an increase from the discounts of about $1.80 per barrel for September deliveries. Prior to the deal, ESPO cargoes were offered at discounts as low as 50 cents per barrel. However, it is anticipated that the price hike may be limited as some refineries may opt to purchase Iranian oil, which is subject to sanctions. China’s larger private refiners have been increasing their purchases of ESPO crude since earlier this year, which has resulted in smaller refiners, known as teapots, being pushed to explore cheaper alternatives like Iranian oil.
• In 2023, Iran significantly increased its crude exports, reaching a peak in May with an outflow of 1.54 million barrels per day, the highest in 4-1/2 years. This information is based on shiptracking data provided by Kpler. By August, exports had further risen to approximately 1.6 million bpd, or just below 2 million bpd when considering condensate as well. These figures were confirmed by an Iranian source familiar with the matter.
• As a result of this abundant supply, the discounts for Iranian Light crude in China, when compared to ICE Brent, have widened to around $13 per barrel on a delivered basis. This is an increase from the previous year’s discount of approximately $10 per barrel. Interestingly, while Iranian crude prices have experienced this decline, prices for competing grades such as Russia’s Urals and ESPO crude have risen.
• At present, private refiners dealing in teapots are the only ones accepting Iranian oil, as state owned firms continue to avoid the sanctioned crude despite its low prices. According to Vortexa, a data analytics firm, China’s import of Iranian oil is expected to reach 1.2 million bpd in August, the highest this year. Kpler, on the other hand, estimates the import to be at 559,000 bpd so far.
• The Iranian oil minister announced earlier this month that the country’s oil exports had exceeded 1.4 million barrels bpd, primarily to China, and that crude output would increase to 3.4 million bpd by the end of September. Sources suggest that the abundant and cheap supply of Iranian oil will limit Russian prices in China.
PREFERANCE
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WRITTEN BY -Madhu pandey , COLLEGE- Lloyd law college , A first SEMESTER LEGAL JOURNALISM INTERN AT LEGAL VIDHIYA
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