China's Iranian oil buying curbed by margins, traders say

• Chinese 'teapot' refiners buy roughly 90% of Iran's oil shipments, importing a record 1.8 million barrels per day in March, with at least 140-155 million barrels currently in transit to China
• Domestic refining margins have collapsed to negative $77.50 per metric ton (a one-year low) as government-regulated fuel prices lag crude cost increases from Middle East tensions
• Iranian Light crude has flipped from a discount to trading at parity or a small premium to ICE Brent for the first time, eroding demand from price-sensitive Chinese buyers

Summary: China's Iranian Oil Buying Curbed by Margins

China's independent refiners ("teapots") continue importing Iranian crude despite intensified U.S. sanctions, though purchases are slowing due to deteriorating profit margins. Chinese teapots purchase approximately 90% of Iran's oil exports, reaching a record 1.8 million barrels per day (bpd) in March 2024, according to Vortexa Analytics.

Key Challenges:

Chinese refiners face severe margin pressure, with gross domestic processing margins at minus 530 yuan (approximately minus $77) per metric ton—a one-year low. The squeeze results from government-regulated fuel prices lagging behind surging crude costs driven by Iran-related conflicts. Additionally, Iranian Light crude has shifted from trading at a discount to a small premium versus ICE Brent benchmark for the first time, further eroding demand.

U.S. Sanctions Impact:

The U.S. imposed fresh sanctions on Tehran's shipping beginning April 13, threatening future deliveries. Last Friday, Washington sanctioned Hengli Petrochemical (Dalian) Refinery, one of China's largest independent plants, for purchasing Iranian oil—though Hengli denied the allegations. A 30-day sanctions waiver that diverted some cargoes to India expired on April 19.

Supply Continuity:

Despite sanctions, tanker arrivals continue in Shandong province, the teapot hub. Multiple vessels discharged Iranian crude at Dongying, Qingdao, and Yantai ports in late April, with 9 additional tankers scheduled for May 1-8. Tracking has become difficult as "shadow fleet" vessels increasingly use fake names to mask voyages.

Iranian oil in transit outside the U.S. blockade zone totals 140-155 million barrels—enough for over two months of Chinese imports at current rates. China defends its Iranian trade as legitimate, with transactions typically branded as Malaysian or Indonesian origin, settled in Chinese currency.