Russian and Iranian oil producers are offering deepening discounts as they compete for the same limited group of Chinese buyers after India retreated from purchases.
India’s imports from Russia could drop by 40 per cent from January levels to around 600,000 barrels a day, according to a scenario from Rystad Energy. Much of the displaced cargoes are now heading east, spurring a price war with Iranian suppliers that have long been favoured by China’s private refiners.
Russia’s Urals grade is selling at around $12 a barrel below ICE Brent, according to traders familiar with such deals, compared with a $10 discount last month. Iranian Light is going for as much as $11 less than the global benchmark, they said, asking not to be named as they’re not authorised to speak to media. That’s widened from $8 to $9 in December.
The independent Chinese refiners, known as teapots, have historically acted as the oil market’s pressure valve, absorbing barrels shunned by others. But their capacity is finite, given they only account for around a quarter of the country’s processing capacity and are also subject to government-set import quotas.
With China unable to fully soak up the displaced crude, unsold oil is piling up in Asian waters and Russia and Iran are running out of options. The Kremlin has already been forced to curb output, depriving it of funds for its war in Ukraine.
Iran, meanwhile, is trying to ship as much oil as it can as it girds itself for a potential attack by the United States.
“Chinese private refiners cannot take in much more as their capacity is likely maxed out,” said Jianan Sun, an analyst at Energy Aspects, pointing to sanctioned barrels building up.
The major Chinese state-owned refiners have traditionally avoided Iranian crude and have, more recently, largely absented themselves from the Russian trade as well. So far, it looks like Iran is taking a hit as Russia muscles in on the market.
