Russian, Iranian oil sellers boost prices as Venezuelan crude rallies

SINGAPORE: Sellers of sanctioned oil from Russia and Iran are hiking offer prices to China after Venezuelan crude rallied following the suspension of US sanctions on the South American producer, trade sources said.

Washington’s six-month waiver of sanctions on Venezuela has intensified competition for the OPEC producer’s heavy oil, lifting prices and reducing supply to top buyer China.

That has forced some Chinese independent refiners, known as teapots, to seek the next-cheapest oil, which comes from Russia and Iran, with demand expected to rebound in early 2024 when Beijing issues new annual import quotas.

This could help boost oil revenues for Moscow and Tehran and lessen the impact of sanctions imposed by Western countries to curb funding for Iran’s nuclear programme and the Ukraine war.

“Iran and Russia have seized a good timing to hike prices, which will undoubtedly help them to increase their revenue,” a China-based trader said.

In two months, discounts for Venezuelan crude delivered to China have narrowed to $11 per barrel from $20 below benchmark ICE Brent, slowing demand from teapots, while Indian refiners and international trading houses such as Vitol, Gunvor and Trafigura have resumed purchases with the lifting of sanctions. So far, only one deal for Venezuelan crude to China in January has been spotted, two Chinese market sources said, at a discount of $11 a barrel against ICE Brent on a delivered basis.

That compares with discounts as deep as $14 a month earlier and around $20 when the US sanctions were in place. Venezuela ships mostly heavy sour grades to China, including Merey and Boscan. These were on average more than $7 a barrel cheaper than medium-sour Iranian Light crude and more than $10 lower than light-sweet Russian ESPO crude over the past year, according to traders.

“People chose Venezuelan crude mainly for its low prices,” said another China-based trader.

“Very few refiners are willing to pay such high prices for such low quality crude.”

The price surge for Venezuelan oils has deterred Chinese buyers struggling with thin margins and limited crude import quotas, pushing them towards the Russian and Iranian grades.