China independent refiners scramble for oil, underpinning spot premiums

December levels could head higher as Middle East supplies were believed to have tightened further following this week's strikes on tankers in the Gulf. Teapots are expected to increase crude runs to meet fuel demand from state refiners, traders said, adding that state-owned refiners are replenishing domestic stocks to levels required by the central government, which is a condition for them to maintain high levels of lucrative exports. The need to use up import quotas by year-end is also driving demand, the traders said. Kpler's senior crude analyst Muyu Xu expects the active spot purchases to lift Chinese seaborne imports to 8.5 million or 9 million bpd, up from 7 million bpd in July, but still way below their pre-war level of around 10 million bpd. Chinese independent refiners have been rushing to secure crude from West Africa, Canada and South America in recent weeks, supporting spot premiums at multi-month highs as they replace thinning Iranian and Russian supplies, trade sources and analysts said. The purchases are set to further tighten physical markets as escalating attacks between the U.S. and Iran have reduced Gulf exports through the Strait of Hormuz, pushing Brent LCOc1 above $100 a barrel. Over the past few weeks Chinese independents have snapped up cargoes from West Africa, Canada and Columbia, with total purchases exceeding 20 million barrels, according to estimates from two of the traders. At least two cargoes of Congolese Djeno and one cargo of Angolan Plutonio crude traded this week, sources said. Sellers include global traders Trafigura and TotalEnergies, they added. Trafigura declined to comment on the matter, while TotalEnergies did not immediately respond to a request for comment. Djeno, a heavy sweet grade, has been sold at premiums of about $22 a barrel above ICE Brent for November delivery, the people said, which one attributed partly to high freight rates. The grade traded in discounts in June. Meanwhile, some independents are in talks to buy small volumes of domestic crude produced in the northwestern region of Xinjiang for delivery later this month or next, another trader said. Teapots have also bought at least four Aframax-sized cargoes of heavy Canadian crude exported via the Trans Mountain pipeline, one source said, adding that one of the deals closed at $3.70 a barrel above ICE Brent for October to November delivery. Premiums of Russian ESPO Blend, among the few reliable and short-voyage options, were heard last traded at $12 above ICE Brent for a November shipment, said two traders. That could climb as nearly 10 Chinese independent refineries sent traders to an annual industry gathering in Singapore this week to track down available supplies and discuss deals, according to several trading sources who met the refinery representatives. While traders from Chinese independents typically visit the APPEC event for networking, this time the team was bigger and was "less leisurely and more work-focused as they're short of oil," said a senior trader. The sources declined to be identified as they are not authorised to speak to media. China's smaller independent refiners, known as teapots, account for one fifth of the country's crude imports. They have in recent years relied on cheaper supply from sanctioned producers. However, the U.S. naval blockade on Iran has crimped its exports while big Chinese refiners Sinopec and Yulong Petrochemical are snapping up the bulk of Russian ESPO Blend exported from the Far East port of Kozmino, the sources said, forcing teapots to turn to spot markets for replacements.

China independent refiners scramble for oil, underpinning spot premiums

Demand outlook stays firm

Chinese independents rush to secure crude

Spot trades and premiums rise across grades

More teapot refiners seek supplies in Singapore

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