Chinese independent refiners, commonly known as teapots, have acquired Iranian oil at premiums to Brent crude for the first time in several years. This shift follows a decline in benchmark prices and expectations that India will increase its purchases after Washington granted a temporary waiver on sanctions for Iranian oil at sea, prompted by the ongoing Middle East conflict.
India is poised to receive its first Iranian oil shipment in seven years due to this temporary sanctions relief. Historically, Iranian crude has traded at a discount to Brent because of sanctions, with Chinese teapots being the largest buyers of this oil. Recently, at least two refiners based in Dongying, a key hub for independent refiners in eastern Shandong province, purchased Iranian Light crude at premiums ranging from $1.50 to $2 per barrel above ICE Brent prices. This contrasts sharply with the previous discount of around $10 per barrel before the conflict.
The purchased cargoes are currently floating near China and are scheduled for delivery within the month. Notably, this marks the first occasion since 2022 that Chinese teapots have paid a premium over Brent for Iranian oil. These refiners, equipped with new import quotas issued by Beijing, sought prompt shipments of Iranian crude following a 13% drop in Brent crude futures to below $100 per barrel on Wednesday, triggered by ceasefire announcements in the Middle East war. Although the contract rebounded by 1% on Thursday, maritime traffic through the Strait of Hormuz remains largely suspended.
Earlier this week, China increased the ceiling prices for retail gasoline and diesel by 420 yuan ($61) and 400 yuan per metric ton, respectively. This adjustment, combined with lower crude costs, has improved refining margins for teapots, motivating them to secure Iranian oil for immediate delivery. Additionally, China’s state planner recently urged independent refiners not to reduce their processing rates below the average levels of the past two years. This directive aims to ensure stable domestic fuel supplies as state-owned refiners reduce their output.
