Iran eyes China ‘teapots’ to clip Saudi wings

China’s independent refiners are on board to get Iranian crude oil possibly for the first time as the Middle Eastern producer is targeting new markets following the removal of sanctions. 

The National Iranian Oil Company (NIOC) is reportedly in talks with the world’s second largest private oil trader, Trafigura, to step up oil shipments to China. 

Iran currently sells most of its crude oil directly to state-owned refiners in China under long-term contracts as well as through additional spot cargoes. 

Trafigura now wants to supply Iran’s Heavy crude grade to independent processors, known as teapots, which typically buy shipments at short notice and in small quantities, Bloomberg has reported.

Talks between Trafigura and NIOC officials are ongoing, the energy news and information provider said, citing unnamed people with knowledge of the matter. 

A Trafigura tanker is currently anchored off South Korea after loading 2 million barrels of Iranian Heavy crude in June. The vessel had sojourned the Chinese port of Qingdao, which is used by teapots to receive oil supplies, for three weeks. 

To sell into teapots, Iran has to use a trader because of logistical constraints involved. NIOC usually uses Very Large Crude Carriers (VLCCs) for its oil cargoes but teapots cannot take in such shipments.

Moreover, dealing directly with non-state entities has credit risks, while selling oil via traders does away with the need to operate crude storage in China and pay demurrage.  

Sales to teapots would boost Iran’s market share in Asia which has seen Saudi Arabia break with its traditional long-term trading mode and sell oil to a Chinese teapot refiner for the first time.

The kingdom has been trying to hinder Iran’s drive to regain its market share with stepped-up exports after the removal of sanctions. 

The Islamic Republic, however, has surprised observers with the speed at which it has restored the production lost due to sanctions in 2012.

Exports are already above 2 million barrels per day and Iran is re-establishing itself in Europe while making inroads into new markets. 

According to the International Energy Agency, Iran was exporting about 2.2 million bpd of crude before 2012 when sanctions were imposed, with Europe taking about 600,000 bpd. 

Exports to Europe in June recovered to about 580,000 bpd, nearly six times greater than prior to sanctions being lifted, the Reuters news agency reported.          

On Tuesday, figures released by Iran’s Ministry of Petroleum showed the country’s crude exports to Asia in June had hit the highest in almost four and half years. 

According to the Shana news agency, China, India, Japan and South Korea took in 1.72 million barrels per day (bpd) of Iranian crude in the month, which rose 47% year-on year. 

It was also twice the volume shipped to Iran’s four major clients in December, which showed the country has restored its market share in the continent, Shana added.

Iranian energy officials usually mention gas condensate in their reports and the new figures for exports most probably included the light crude oil which is produced in association with natural gas.

“It is predicted that the increase in Iranian oil exports to Asian markets, especially emerging economies, will continue in the coming months,” Shana said.

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