Chinese Teapot Refiners Increase Iranian Crude Oil Purchases

Independent oil refiners in China's Shandong province, known as teapots, are expected to increase their purchases of Iranian crude oil. This shift follows a period of reduced imports after the Government of China directed refiners to maximize fuel production to mitigate the impact of the war in Iran, leading refiners to rely on existing inventories.

Regional stockpiles reached an eight-month low of 360 million barrels in July, with Shandong inventories specifically declining by an estimated 20 to 35 million barrels. This decline, coupled with refinery utilization rising to 50.26% by August 7, has created a demand for sanctioned crude. Iranian Light is currently offered at discounts of approximately $4 per barrel relative to ICE Brent.

The previous reduction in purchases caused an estimated 30 million barrels of Iranian oil to accumulate on tankers in Asian waters. Because teapot refiners typically account for 90% of Iranian oil sales, analysts expect these independent operators to help clear the floating supply as they replenish their depleted stocks.