Millions of Barrels of Iranian Oil Are Piled Up in China’s Ports

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(edited)

One have to admire China for taking advantage of the situation...

To be fair, 20Mbbl is ~2 days worth of crude imports to China.

https://www.bloomberg.com/news/articles/2019-07-22/millions-of-barrels-of-iranian-oil-are-piled-up-in-china-s-ports

Tankers are offloading millions of barrels of Iranian oil into storage tanks at Chinese ports, creating a hoard of crude sitting on the doorstep of the world’s biggest buyer.

Two and a half months after the White House banned the purchase of Iran’s oil, the nation’s crude is continuing to be sent to China where it’s being put into what’s known as “bonded storage,” say people familiar with operations at several Chinese ports. This supply doesn’t cross local customs or show up in the nation’s import data, and isn’t necessarily in breach of sanctions. While it remains out of circulation for now, its presence is looming over the market.

The store of oil has the potential to push down global prices if Chinese refiners decide to draw on it, even as the Organization of Petroleum Exporting Countries and allies curb production as growth slows in major economies. It also allows Iran to keep pumping and move oil nearer to potential buyers.

“Iranian oil shipments have been flowing into Chinese bonded storage for some months now, and continue to do so despite increased scrutiny,” said Rachel Yew, an analyst at industry consultant FGE in Singapore. “We can see why the producer would want to do so, as a build-up of supplies near key buyers is clearly beneficial for a seller, especially if sanctions are eased at some point.”

There could be more of the Persian Gulf state’s oil headed for China’s bonded storage tanks, Bloomberg tanker-tracking data show. At least ten very large crude carriers and two smaller vessels owned by the state-run National Iranian Oil Co. and its shipping arm are currently sailing toward the Asian nation or idling off its coast. They have a combined carrying capacity of over 20 million barrels.

The bulk of Iranian oil in China’s bonded tanks is still owned by Tehran and therefore not in breach of sanctions, according to the people. The oil hasn’t crossed Chinese customs so it’s theoretically in transit.

Some of the crude, though, is owned by Chinese entities that may have received it as part of oil-for-investment schemes. For example, one of the Asian nation’s companies could have helped fund a production project in Iran under an agreement to be repaid in kind. Whether this sort of transaction is in breach of sanctions isn’t clear, and so the firms are keeping it in bonded storage to avoid the official scrutiny it would if it’s registered with customs, according to the people.

Nobody replied to a faxed inquiry to China’s General Administration of Customs.

Lack of Clarity

The build-up of Iranian oil in Chinese bonded storage has yet to be clearly addressed by Washington. The White House ended waivers allowing some countries to keep importing Iranian oil on May 2.

There are currently no exemptions issued to any country for the import of Iranian oil, and any nation seen importing cargoes from the Persian Gulf producer will be in breach of sanctions, according to a senior Trump administration official, who asked not to be identified because he wasn’t authorized to speak publicly about the matter.

“The U.S. will now need to define how it quantifies the infringement of sanctions,” said Michal Meidan, director of the China Energy Programme at the Oxford Institute for Energy Studies. There’s a lack of clarity on whether it would look at “financial transactions or the loading and discharge of cargoes by company or entity,” she said.

See also: China Buying Iran LPG Despite Sanctions, Ship-Tracking Shows

China received about 12 million tons of Iranian crude from January through May, according to ship-tracking data, versus about 10 million that cleared customs over the period. The discrepancy could be due to the flow of oil into bonded storage. China will release June trade data that will include a country-by-country breakdown of oil imports in the coming days.

One of the Iranian tankers that appears to have loaded oil after the U.S. waivers ended is VLCC Horse. It discharged at Tianjin in early-July after sailing from the Middle East, where shipping data showed it signaling its destination as Iran’s Kharg Island on May 4.

Several other Iran-owned tankers offloaded in China or were heading there, according to ship tracking data. VLCC Stream discharged at Tianjin on June 19, while Amber, Salina and C. Infinity offloaded crude at the ports of Huangdao, Jinzhou and Ningbo. Snow, Sevin and Maria III were last seen sailing in the direction of China.

Putting crude into bonded tanks in China also means Iran can avoid having to tie up part of its tanker fleet by storing the oil at sea for months at a time. The Islamic Republic used floating storage in 2012 to 2016 and again in 2018 as buyers shunned its crude due to U.S.-imposed trade restrictions.

Should the Iranian crude leave bonded storage and end up in the market, it could pressure oil prices, according to Bank of America Merrill Lynch. West Texas Intermediate plunged more than 20% from late April to mid-June as the U.S.-China trade war intensified. It’s since recovered some of those losses, partly as a result of the rising tension between Washington and Tehran, and is trading near $57 a barrel.

“A further escalation in U.S. tariffs on Chinese goods could jointly drive global economic growth a lot lower and encourage Iran-China cooperation,” Bank of America Merrill Lynch said in a June note. “If Chinese refiners start to purchase Iran oil in large volumes on a sustained basis as U.S. tariffs rise again, WTI could drop to $40 a barrel.”

Edited by DanilKa
addied info on daily crude imports
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It would be foolish for Trump to relax the tariffs at this point if China does not make a good faith effort to address the trade issues. If they do not, the next increase in tariffs has already been put on the table.

It is important to remember that other countries and the EU are concerned about the trade issues with China, but would have meekly allowed the status quo to remain in place. They now follow closely what is happening while condemning the US for slowing the global economy. You can't have it both ways and there will be some 'pain' involved in resolving the situation unless you agree to simply follow the Chinese plan.

If WTI drops to $40/bbl, so be it. I haven't seen any sympathy from the US oil patch for driving us in the international oil patch into early retirement.

Could the shale oil fiasco in the US survive at $40?

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The trade issues with China are not just economic issues. It is about power. Trump wants to stop the growing importance of China. Or at least delay this development. That is why it will take long to come to any agreement acceptable forTrump. So the pain will stay, the global economy will slow down further and oil will drop further. Just a a new economic reality, with different rules and more protectionism. China will not, can not, give up their desire to control what is happening inside their borders. It is their mindset.

Many shale oil companies will likely be bought by the bigger ones in the coming years, hopefully this will lower the total cost for them. At Usd 40 I, for a longer period of time, I worry much more about unstable Middle East countries. We can handle economic downturn, but can we handle increasing erratic behavior of those countries that do run out of money? Shale oil could well be on the last page of the newspapers.

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6 hours ago, oilexpert.nl said:

The trade issues with China are not just economic issues. It is about power. Trump wants to stop the growing importance of China. Or at least delay this development. That is why it will take long to come to any agreement acceptable forTrump. So the pain will stay, the global economy will slow down further and oil will drop further. Just a a new economic reality, with different rules and more protectionism. China will not, can not, give up their desire to control what is happening inside their borders. It is their mindset.

Many shale oil companies will likely be bought by the bigger ones in the coming years, hopefully this will lower the total cost for them. At Usd 40 I, for a longer period of time, I worry much more about unstable Middle East countries. We can handle economic downturn, but can we handle increasing erratic behavior of those countries that do run out of money? Shale oil could well be on the last page of the newspapers.

That and the IP theft, not courts, no rule of law as China said would happen when they signed up for WTO.  Should have happened at least a decade ago.  if not  2 decades. 

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4 hours ago, Wastral said:

That and the IP theft, not courts, no rule of law as China said would happen when they signed up for WTO.

most of technology transfer happens with willing participation of US and European companies. David Levine have an interesting position on IP - it stifles the progress. Heard an opinion that in Chinese culture use of someone else idea is a mere sign of respect:)

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11 hours ago, oilexpert.nl said:

The trade issues with China are not just economic issues. It is about power. Trump wants to stop the growing importance of China. Or at least delay this development.

If that's a case - would be heck of a lot easier not to help China growing into its current position, similarly to how USA helped USSR to develop its industry in late 1920th-1930th. Makes you wonder who benefit and what their motives are.

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14 hours ago, Douglas Buckland said:

It would be foolish for Trump to relax the tariffs at this point if China does not make a good faith effort to address the trade issues. If they do not, the next increase in tariffs has already been put on the table. 

It would be equally foolish or outright dangerous to escalate situation while China pretend to play along. Game is definitely bigger than trade war, likely North Korea is part of it. Let's pray for peaceful resolution of engineered tensions with Iran. 

On a positive note, US crude oil inventory expected to decline to 2018 level by ~mid-Oct

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2 hours ago, DanilKa said:

It would be equally foolish or outright dangerous to escalate situation while China pretend to play along. Game is definitely bigger than trade war, likely North Korea is part of it. Let's pray for peaceful resolution of engineered tensions with Iran. 

On a positive note, US crude oil inventory expected to decline to 2018 level by ~mid-Oct

Part of China's strategy will be to 'wait out' the US election cycle. Trump does not have the luxury of letting up the pressure on the Chinese economy.

Remember, Xi is 'President for life'.

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3 hours ago, DanilKa said:

most of technology transfer happens with willing participation of US and European companies. David Levine have an interesting position on IP - it stifles the progress. Heard an opinion that in Chinese culture use of someone else idea is a mere sign of respect:)

And according to WTO rules, business are not required to transfer or do a partnership of 51% and China signed up to them. 

Theft, works for a short time.  Socialism works for a short time till you run out of other peoples money to steal.  Or in this case, run out of other peoples developed ideas who put the $$$(their lives) into them.  There is no such thing as R&D in China.  Other than "researching" your opponents IP, researching how to steal it, and developing ways to 75% copy it. 

You can always find a greedy person willing to sell out their company long term viability for short term profits.  Those golden parachutes for CEO's sure have been massive in the 90's and 2000's when moving their plants to China creating large profits now haven't they?  Of course where has the debt accumulated?  On credit cards and lack of taxes to the tax coffers.  True in Europe as well.

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2 hours ago, Wastral said:

And according to WTO rules, business are not required to transfer or do a partnership of 51% and China signed up to them. 

Theft, works for a short time.  Socialism works for a short time till you run out of other peoples money to steal.  Or in this case, run out of other peoples developed ideas who put the $$$(their lives) into them.  There is no such thing as R&D in China.  Other than "researching" your opponents IP, researching how to steal it, and developing ways to 75% copy it. 

You can always find a greedy person willing to sell out their company long term viability for short term profits.  Those golden parachutes for CEO's sure have been massive in the 90's and 2000's when moving their plants to China creating large profits now haven't they?  Of course where has the debt accumulated?  On credit cards and lack of taxes to the tax coffers.  True in Europe as well.

My point - western companies are complacent. As to no RnD - this is not my impression from few visits, I find their industry quite dynamic and a lot of resources goes into research (I'm only familiar with O&G sector).

Sorry, but I don't get your point on US debt. IMO US had an exorbitant privilege of exporting USD creating out of thin air (sort of, still via T-bills issuance). Current monetary system demands trade imbalance with reserve currency issuer.

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3 hours ago, DanilKa said:

My point - western companies are complacent. As to no RnD - this is not my impression from few visits, I find their industry quite dynamic and a lot of resources goes into research (I'm only familiar with O&G sector).

Sorry, but I don't get your point on US debt. IMO US had an exorbitant privilege of exporting USD creating out of thin air (sort of, still via T-bills issuance). Current monetary system demands trade imbalance with reserve currency issuer.

R&D is for products that do not exist. Standards that do not exist.  R&D is not building assembly lines that have been done for 100 years.  As for the debt, you and I are both partially right and wrong.  Yes, you can print your way away(entices those who are unscrupulous) and allows for the export of industry which destroys your tax base.  But we are both a little wrong in absolute statements as the debt could be handled differently if the USA people were willing to elect/stop stealing from their children/grand children.  OF course most of the world has followed suit at stealing from their children/grand children so how this truly falls out, I do not know, but it would not surprise me if in 2 decades everyone is talking about the Indian Rupee as the global currency. It might happen even sooner.  Oh yes, and India has an even better Geographical position than China, if one assumes(bad idea) that Eastern Russia will remain as Eastern Russia and not become Northern China. 

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17 hours ago, Wastral said:

R&D is for products that do not exist. Standards that do not exist.  R&D is not building assembly lines that have been done for 100 years.  As for the debt, you and I are both partially right and wrong.  Yes, you can print your way away(entices those who are unscrupulous) and allows for the export of industry which destroys your tax base.  But we are both a little wrong in absolute statements as the debt could be handled differently if the USA people were willing to elect/stop stealing from their children/grand children.  OF course most of the world has followed suit at stealing from their children/grand children so how this truly falls out, I do not know, but it would not surprise me if in 2 decades everyone is talking about the Indian Rupee as the global currency. It might happen even sooner.  Oh yes, and India has an even better Geographical position than China, if one assumes(bad idea) that Eastern Russia will remain as Eastern Russia and not become Northern China. 

hard to make predictions, especially about the future...

There is always many ways to look at things - try to see it as if you were in China (disclaimer - I'm not CPC supporter - at all!).

Kids may be debt free - they just would have to start building on ruins and current generation is the one who'd have to pay the piper...

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On 7/24/2019 at 4:44 AM, Wastral said:

R&D is for products that do not exist. Standards that do not exist.  R&D is not building assembly lines that have been done for 100 years.  As for the debt, you and I are both partially right and wrong.  Yes, you can print your way away(entices those who are unscrupulous) and allows for the export of industry which destroys your tax base.  But we are both a little wrong in absolute statements as the debt could be handled differently if the USA people were willing to elect/stop stealing from their children/grand children.  OF course most of the world has followed suit at stealing from their children/grand children so how this truly falls out, I do not know, but it would not surprise me if in 2 decades everyone is talking about the Indian Rupee as the global currency. It might happen even sooner.  Oh yes, and India has an even better Geographical position than China, if one assumes(bad idea) that Eastern Russia will remain as Eastern Russia and not become Northern China. 

Following its current path, Russia is diminishing as a nation and I suspect that it will continue on that path. Spain will soon have an economy larger than Russia's. Low prices on oil and natural gas are the stake in the heart of Russia. They either side with the West or stay a lesser partner of China. Allowing immigration would eventually destroy their culture and lessen their totalitarian hold on the population. Without nuclear weapons they would be a vassal of China. 

http://worldpopulationreview.com/countries/russia-population/

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