Chinese independent refiners boost Iraqi oil purchases as Iranian flows fall, traders say

• Iranian crude stored on vessels outside the blockade zone dropped from 100 million barrels in late July to 45 million barrels, with Iran exporting zero crude in September for the first time since 2013 according to Kpler data
• Major Chinese buyers including Hongrun Petrochemical, Qicheng, and Chambroad purchased primarily Iraqi Basra Medium and Heavy crude, which has become the new benchmark for independent refiners due to ample supplies
• Refining margins have weakened sharply, with Shandong refinery utilization rates falling from 60% to 55% in September and refiners losing 250-500 yuan per ton by late September compared to profits of 500 yuan per ton in early September

Summary

Chinese independent refiners are significantly increasing crude oil purchases from Iraq and Qatar to offset sharply declining Iranian supplies amid US sanctions enforcement. Traders report at least 12 million barrels purchased for October-November delivery, with some estimates reaching 15-20 million barrels.

Key Transaction Details:

• Purchases made through trading houses Mercuria, Totsa, and Trafigura
• Premiums of $12-$20 per barrel above ICE Brent benchmark
• Primary buyers include Hongrun Petrochemical, Qicheng Petrochemical, Qirun Petrochemical, Hualong, and Chambroad Petrochemical
• Mostly Iraqi Basra Medium and Heavy crude, plus 3 million barrels of Qatar's al-Shaheen crude

Iranian Supply Collapse:

China's Iranian oil imports plummeted nearly 50% in September to 590,000 barrels per day—the lowest since January 2023—following a US naval blockade imposed in July. Iranian crude in floating storage dropped from 100 million barrels in late July to 45 million barrels. Kpler data shows Iran exported zero crude in September for the first time since 2013.

Market Pressures:

Iraqi oil has emerged as the new benchmark for Chinese independent refiners due to reliable supply and availability. However, refining margins are deteriorating significantly. Shandong refinery utilization rates fell from 60% to 55% by end-September. Refiners shifted from 500 yuan per ton profits in early September to losses of 250-500 yuan ($37-$75) per ton by month-end, driven by elevated crude costs and weak product margins.

Trading houses are lowering offer prices as Gulf supply through the Strait of Hormuz recovers, with Chinese buyers resisting premiums above $20 per barrel.