Bloomberg said that Iran's price cut is aimed at competing with Russia's Urals. Iran is said to have fewer options due to sanctions.
Meanwhile, Russian oil exports to China hit a record high in May. Russia has surpassed Saudi Arabia to become the leading oil supplier to the world's largest crude oil consumer. According to consulting firm FGE, Russian Urals crude oil has also replaced some Iranian oil.
The only competition between Iran and Russia could be in China, which would be in Beijings favor, Vandana Hari, founder of Singapores international energy market analysis firm today. This is also likely to make Gulf region producers uneasy when witnessing cheap oil dominate their highly appreciated markets.
China's official data only lists three months of oil imports from Iran since the end of 2020, two of which were in January and May. However, data from the analytics firm Kpler shows that crude oil flows were stable at over 700,000 barrels/day in May and June.
Traders told Bloomberg that Iranian oil has been priced nearly $10 a barrel lower than the Brent oil price later delivery to match the Russian Urals oil price expected to arrive in China next month. In February, Iran sold oil at a price only 4-5 USD lower than Brent oil.
Traders explained that Russian crude oil is less sulfurized and higher in quality than Iranian oil, although it is still cheaper than its counterpart oil from the Middle East.
Traders also note that China is willing to buy discounted oil regardless of its origin, so suppliers who do not reduce prices have less opportunities in this country.
According to Jane Xie, a senior oil analyst at Kpler, West Africa is one of the hardest hit, especially supplies from Angola, Gabon and the Democratic Republic of Congo. Oil from West Africa to China averaged 642,000 barrels per day last month, the lowest level since November 2013.
Meanwhile, according to Reuters, Russia became China's leading oil supplier in May, with exports increasing by 55% compared to last year, reaching 8.42 million tons, equivalent to 1.98 million barrels per day.
Russian oil supplied to China is pumped via the Eastern Siberia Pacific pipeline (ESPO) and sea cargoes from European and Russian ports.
The 25% increase compared to April helped Russia surpass Saudi Arabia to become China's largest oil supplier.
China has cut Saudi Arabia's oil imports to 7.82 million tons, equivalent to 1.84 million barrels per day, down from 2.17 million barrels per day in April. Brazil's supply fell 19%, to 2.2 million tons.
Despite a prolonged decline in demand due to COVID-19, China's total oil imports increased by nearly 12% in May compared to the same period last year, to 10.8 million barrels per day.
China's increased purchases of Russian oil came after Moscow sharply reduced crude oil prices earlier this year as traditional Russian customers began to refuse to import due to sanctions related to Ukraine.
However, the price cuts introduced by Russia have attracted China and India to increase oil purchases in the past two months. In March, the average discount for Russian Urals was around 20%, in April was 33%, although by mid-May, average monthly fuel costs had risen nearly 20%.
