Chinese independent oil refiners are stepping up purchases of crude from West Africa, Canada and South America as they struggle to replace supplies from Iran and Russia, pushing spot crude premiums to multi-month highs.
The buying has intensified in recent weeks as escalating U.S.-Iran attacks disrupt Gulf oil exports through the Strait of Hormuz and push Brent crude above $100 a barrel.
Trading sources estimate that Chinese independent refiners, commonly known as “teapots”, have purchased more than 20 million barrels of crude from alternative suppliers, including cargoes from West Africa, Canada and Colombia.
The buying was evident at the annual APPEC industry gathering in Singapore this week, where representatives from nearly 10 Chinese independent refineries met traders to secure available crude and negotiate supply deals.
A senior trader said the Chinese refinery teams were larger and more focused on business than usual, reflecting the shortage of crude available to the smaller refiners.
Teapots account for about one-fifth of China’s crude imports and have traditionally relied on discounted supplies from sanctioned producers, particularly Iran and Russia, to maintain competitive refining margins.
However, a U.S. naval blockade of Iran has reduced Iranian exports, while major Chinese refiners Sinopec and Yulong Petrochemical have taken a large share of Russian ESPO Blend shipments from Kozmino, limiting supplies available to independent refiners.
The shortage has pushed teapots into the spot market, with Congolese Djeno crude trading at premiums of about $22 a barrel over ICE Brent for November delivery and Angolan Plutonio also attracting strong interest.
Chinese independents have also bought at least four Aframax-sized cargoes of heavy Canadian crude shipped through the Trans Mountain pipeline, with one deal reported at $3.70 a barrel above ICE Brent for October-November delivery.
Analysts expect the buying to continue as Chinese refiners increase crude processing to meet domestic fuel demand, replenish state-controlled inventories and use import quotas before the end of the year, potentially lifting China’s seaborne crude imports to 8.5-9 million barrels per day from about 7 million bpd in July.