Despite delays, China seeks full Iran oil volume for third month

REUTERS

For the third month in a row, China has nominated full contract volumes of Iranian crude for September, but refineries have begun to complain about delays in oil deliveries posing a problem, trading sources said.

China, Iran's largest oil customer and top trading partner, is expected to load about 15.5 million barrels of Iranian oil this month, the third that it will be using the tankers of National Iranian Tanker Co. (NITC) to carry home oil and get around a European Union insurance ban that began in July.

But the downside of relying only on NITC vessels has started to show, with delays piling up as the transport volumes stretch the capabilities of the Iranian firm's fleet.

"The delivery dates have become very unpredictable," said one Chinese buyer who declined to be identified because he was not authorized to speak to the media.

"This has become quite a headache. It shows their shipping capacity is really over-stretched."

At 15.5 million barrels a month, or roughly 520,000 barrels per day, China alone would account for almost half of Iran's total exports last estimated by the International Energy Agency at 1 million bpd in July.

IRAN OIL EXPORTS PLUNGE

Iranian oil exports have plunged from a year-ago figure of some 2.3 million bpd because of tough Western sanctions aimed at choking off Tehran's oil revenue in a bid to halt its controversial nuclear program. The West suspects Iran wants to build an atomic bomb, but Iran says its aim is peaceful.

At 520,000 barrels per day, the Iranian shipper would have to provide eight very large crude carriers (VLCC) each month to meet China's needs alone. A round-trip voyage between Iran and China takes about 48 days.

"Sometimes a cargo could arrive more than 10 days behind schedule, making it difficult for plants to manage inventories," said a second Chinese oil official. "It actually has started to affect refinery productions."

NITC has a fleet of 39 oil tankers including 25 VLCCs, but the shipper also uses some of its vessels for floating storage. Its plan to expand its fleet, including a $1.2 billion order to have 12 super-tankers to be built in China, has been delayed.

However, Chinese buyers are unlikely to slap punitive measures on from the Iranian side as their contracts do not stipulate such penalties, Chinese sources said.

"We can't do much about that for now. But it's an issue we will discuss internally soon," said a third source.

It was not immediately clear whether the delays would force China to scale back on its Iranian oil imports but they could cap Chinese plants' appetite for additional supplies beyond contract volumes, they said.

China and Iran agreed in June to use NITC vessels to supply oil on a delivered ex-ship basis (DES), which sets settlement prices at the point when the oil leaves the tanker in the Chinese port and requests the seller to provide third-party insurance to cover indemnities for oil leaks and personal injuries.

Since July 1, the European marine insurance market that dominates the sector has stopped covering vessels carrying Iranian oil.

China's Iranian crude oil imports in July fell nearly a third from an 11-month high in June, customs data showed. Imports in the first seven months were down 22 percent on the year, largely due to cuts made in the first quarter due to disputes over the 2012 supply contracts.