How Will China's Clampdown on Mislabelled Cargoes Affect Sanctioned Oil?

Chen Aizhu and Muyu Xu
Thursday, May 4, 2023

Chinese customs authorities are stepping up inspection checks on cargoes of heavy crude oil after uncovering several Iranian shipments that were mislabelled as diluted bitumen in an effort to bypass import quotas.

The checks, begun a month ago, are delaying oil discharges into the eastern refining hub of Shandong province.

They are also adding to uncertainty over the risk of disruption to shipments from Iran and Venezuela, while cutting into refining operations just as fuel demand recovers.   

China's independent refiners known as teapots, which account for more than a fifth of its crude imports, have become top customers of Iranian and Venezuelan oil since late 2019.

That has followed tough U.S. sanctions on the two exporters, which have supplied China for more than two decades.

The Chinese refiners have increasingly decoupled from the mainstream global oil market to focus almost solely on  discounted oil from Iran and Venezuela, and more recently Russian oil in the aftermath of Moscow's invasion of Ukraine.

China has repeatedly condemned Washington's unilateral sanctions and defended trade with Iran and Venezuela as normal business practice in line with international law.   

WILL THE CHECKS WIDEN TO ALL IRANIAN CARGOES?

This is unlikely. Traders said they believed the checks were technical rather than political, and aimed to regulate the domestic market and toughen scrutiny of the use of crude oil quotas.

Beijing sets no quotas for state-run refiners, but allots them for independent plants, recently giving greater volumes to "mega" private refiners while cutting back on quotas for smaller plants. 

The inspections have primarily targeted shipments of oil with density of less than 950 kg a cubic meter (kg/m3) - mostly Iranian heavy crudes Pars Oil and Soroosh - that account for about 10% to 20% of the Middle East nation's oil into China, compared with dominant Iranian Light and Iranian Heavy. 

China's Iranian oil imports, often branded as originating from Malaysia, Oman or the United Arab Emirates, were estimated at 640,000 barrels per day (bpd) in the first quarter of 2023, according to tanker tracker Vortexa Analytics.

That is up from 490,000 bpd a year earlier and down from 960,000 bpd in the fourth quarter of 2022, Vortexa estimated. 


VENEZUELAN FUEL

Traders expressed worry that inspections might extend to Venezuelan crude, long used as a feedstock for road-paving bitumen with a density of 950 kg/m3, or higher, and which has been marketed into China in recent years labelled as Malaysian crude or bitumen mix with little hassle.

Vortexa estimated China's first-quarter imports of Venezuelan crude, mostly its main grade Merey, at 430,000 bpd, steady with the previous quarter but up from 300,000 bpd a year earlier.  

China has not officially reported any crude imports from Venezuela since October 2019. Only a handful of Iranian oil shipments were officially recorded, often destined for state reserves, after independents took over the business in late 2019.   


WHY THE MISLABELLING?

Some independent refiners do not have, or are short of, crude oil import quotas. 

Cargoes labelled as diluted bitumen do not require quotas, but are subject to consumption tax of 1,218 yuan ($176) a tonne, and an import tariff of 8%. Refiners can receive partial rebates of the consumption tax after processing.  

Traders said the mislabelling was encouraged by steep discounts for Iranian oil, last heard at benchmark Brent futures minus $12.5 a barrel, and recovering demand in China for gasoline, aviation fuel and bitumen.     

($1=6.9110 Chinese yuan renminbi)


China's Iranian oil imports since 2022https://tmsnrt.rs/3LAavqw

(Reuters - Reporting by Chen Aizhu and Muyu Xu; Editing by Clarence Fernandez)

Categories: Asia Oil Tankers

Related Stories

Japan Protests China’s New Oil and Gas Construction Activities in East China Sea

Woodside Agrees Long-Term LNG Supply with Petronas Unit

MODEC and Terra Drone Renew FPSO Drone Inspection Partnership

Petronas-Eni Upstream Joint Venture to Take Up to Two Years to Set Up

Chuditch Gas Field Drilling Ops Get Delayed to Next Year

UK Firm Secures Exploration Extension for Two Blocks off Vietnam

CNOOC Starts Production at Offshore Field in South China Sea

CDWE Wraps Up Pin Pile Installation Job for Taiwanese Offshore Wind Farm

CIP, ACEN Partner Up for First Large-Scale Offshore Wind Farm in Philippines

Valeura Concludes Eight-Well Drilling Campaign in Gulf of Thailand

Current News

Centrica and Thailand’s PTT Ink Long-Term LNG Supply Deal

Petrovietnam, Partners Sign PSC for Block Off Vietnam

Japan Protests China’s New Oil and Gas Construction Activities in East China Sea

CNOOC Signs Hydrocarbons Exploration and Production Deal with Kazakhstan

Thailand's PTT to Buy LNG from Glenfarne's Alaska LNG Project

Woodside and Jera Agree LNG Cargoes Supply for Japan’s Winter Period

Petronas Expands Suriname Portfolio with Deepwater Block Acquisition

Japanese Oil and Gas Firm Enters Two Blocks off Malaysia

Yinson Production, “K” LINE Target Europe's CCS with FSIU and LCO2 Solutions

Woodside Agrees Long-Term LNG Supply with Petronas Unit

Subscribe for AOG Digital E‑News

AOG Digital E-News is the subsea industry's largest circulation and most authoritative ENews Service, delivered to your Email three times per week

https://accounts.newwavemedia.com