Traders Report Margins Limit China's Iranian Oil Purchases

• Chinese refining margins hit a one-year low at minus 530 yuan ($77.50) per metric ton as government-regulated fuel prices lag crude cost increases
• Iranian Light oil prices shifted from discount to premium versus ICE Brent for the first time, reducing buyer appetite for previously discounted barrels
• U.S. imposed sanctions on Hengli Petrochemical, one of China's largest independent refineries, though an estimated 140-155 million barrels of Iranian oil remain in transit outside the blockade zone

Summary

Chinese independent refiners ("teapots") continue importing Iranian crude despite intensified U.S. sanctions, though purchasing is slowing due to deteriorating refining economics and price pressures. China typically purchases approximately 90% of Iran's oil exports, with imports reaching a record 1.8 million barrels per day (bpd) in March, according to Vortexa Analytics.

Key Challenges:

Chinese domestic refining margins have fallen to negative territory at minus 530 yuan ($77.50) per metric ton—a one-year low—as government-regulated fuel prices lag rising crude costs amid geopolitical tensions. Iranian Light crude has shifted from trading at a discount to parity or slight premium versus ICE Brent benchmark for the first time, eroding demand.

Sanctions Impact:

The U.S. imposed fresh sanctions on April 13 targeting Tehran's shipping networks and sanctioned Hengli Petrochemical (Dalian) Refinery on April 25 for purchasing Iranian oil, which the company denied. A 30-day U.S. sanctions waiver expired April 19, though Iranian oil shipments to Shandong province continue arriving. Energy Aspects notes sanctions will complicate operations but won't materially shift Chinese buying patterns while Iranian supply remains available.

Supply Dynamics:

Between 140-155 million barrels of Iranian crude are currently in transit outside the U.S. blockade zone—sufficient for over two months of Chinese consumption at current rates. Tracking Iranian oil flows has become increasingly difficult as shadow fleet tankers use fake vessel names and complex ship-to-ship transfers. The trade involves Chinese currency settlement and difficult-to-trace intermediaries, with cargoes often mislabeled as Malaysian or Indonesian origin.

Beijing defends its Iranian trade as legitimate and opposes unilateral sanctions.