China oil refiners cushioned from Iran conflict with ample Iranian, Russian supply at hand

By Chen Aizhu and Siyi Liu

SINGAPORE, March 2 (Reuters) - Refiners in China, the world's top oil importer, have enough supply on hand to weather near-term disruption from the Iran conflict, bolstered by recent record purchases of Iranian and Russian crude and robust government stockpiling, traders said.

A prolonged supply disruption could, however, force the country's refiners to curb output and run down commercial stockpiles, some of the traders said.

China has around 900 million barrels in strategic inventories, or 78 days' worth of imports, according to estimates by Vortexa and traders.

Its independent refiners, known as teapots, are the main market for Iranian oil that trades at a deep discount thanks to U.S. sanctions that scare off most buyers, with record volumes in floating storage or on the way to China.

“Iran has boosted exports since mid-February and private refineries will still have access to around 30 million barrels of Iranian floating storage, most of which is off Malaysia and China,” said Sun Jianan, senior analyst at Energy Aspects.

Chinese traders were mostly on the sidelines on Monday, seeking to digest the impact of the joint U.S.-Israel air war against Iran, Tehran's retaliatory strikes in the Gulf and the conflict expanding into Lebanon. Oil prices were up 9%.

"The market is on edge and the situation could change by the day," said a senior trader with a large independent refiner.

A second trader at a Shandong province-based plant that processes Iranian oil said he "couldn't bring himself to bid" as he could not gauge how the situation would evolve.

NARROWER DISCOUNTS ON IRANIAN CRUDE?

That said, there is not much concern about supplies for March and April deliveries, with abundant Russian and Iranian barrels, the trader added.

While clear pricing indications have yet to emerge, some traders expect discounts for Iranian crude to narrow on expectations of tighter supply. One trader cited an offer at about ICE Brent minus $9 a barrel on a delivered basis, from minus $11 last week.

There is also market speculation that Iranian supplies could eventually be removed from Washington's sanctions list if the military campaign results in the U.S. taking control of Iranian oil exports.

For the year to date, China's oil imports from Iran account for 11.5% of its total seaborne imports, with oil from Russia close behind at 10.5%, according to tanker tracker Kpler.

Kpler pegged Iranian oil loaded in February at 2.15 million barrels per day, the highest daily level since July 2018, while Vortexa estimated it at 2 million bpd. Iranian exporters were said to have rushed to ship oil ahead of a possible conflict.

Meanwhile, China's Russian imports are set to climb for a third straight month to a record in February after India slashed purchases. Early transactions for April-arriving Russian ESPO blend remained deeply discounted at ICE Brent minus $8-$9 a barrel.

Emma Li, Vortexa's China analyst, said abundant Russian and Iranian shipments mean teapots are unlikely to turn to the mainstream market soon.