(Bloomberg) — A large group of oil tankers carrying Iranian crude oil is currently sitting idle off the eastern coast of Malaysia. This is happening as independent refiners in China are largely absent from the market, even with significant price discounts.
Currently, Iranian Light crude is being offered at a discount of around $5 per barrel below ICE Brent prices, compared to about $2.50 two weeks ago. These shipments are scheduled for delivery next month.
In China, the independent refiners, often referred to as "teapots," are the main buyers of Iranian oil. However, they have cut down their processing rates to below seasonal averages due to very slim profit margins. This has caused a 60% increase in the amount of Iranian crude stored at sea in Asia, with levels rising to 24.4 million barrels since the US naval blockade was reinstated in mid-July, according to data collected by Kpler.
The largest grouping of tankers carrying Iranian oil is located near the Singapore Strait, off Malaysia's eastern coast. According to Kpler, this area serves as a common point for ship-to-ship transfers. Once a transfer is completed, the oil is usually shipped to China.
As of July 24, teapots in Shandong province, which is home to most of China's independent refiners, were operating at just over 48% of capacity. This is below the five-year seasonal average of nearly 60%. While profit margins have improved after falling sharply in April and May due to Beijing’s push for fuel production regardless of costs, they are still negative.
The overall volume of Iranian crude oil in transit has remained relatively stable since the blockade was renewed, totaling more than 130 million barrels, according to Kpler and Vortexa. This figure includes tankers in the Persian Gulf that have been unable to leave. Additionally, empty Iranian vessels are facing disruptions.
According to Charlie Brown, an adviser at the nonprofit group United Against Nuclear Iran, the US blockade is “disrupting the logistics cycle.” He noted that many Iranian-flagged tankers at the East of Port Limits are unable to return to Iran to reload, which hinders “Tehran’s ability to replenish those offshore stocks.”