Oil tankers with millions of barrels of crude from Russia, Iran and Venezuela are piling up off China—but sanctions aren’t the problem

China has been one of the only buyers of sanctioned Iranian and Venezuelan oil over the last few years. The world’s largest crude importer is also still taking Russian supplies that are being largely shunned since the invasion of Ukraine.

The trade in the discounted oil is now being disrupted by the country’s worsening virus outbreak, with waiting times to unload ships increasing. Kpler estimates that daily oil demand will drop by at least 450,000 barrels in April, mainly due to falling consumption of gasoline and jet fuel, according to Jane Xie, a senior oil analyst at the data and analytics firm in Singapore.

“The ongoing lockdowns in China are definitely having a massive impact on the country’s mobility and consequent oil demand,” she said. “There are also logistical bottlenecks.”

China’s independent refiners are typically key buyers of these grades, in part due to cheap pricing and the close proximity to Russia’s eastern ports, but they’ve been hit hard by the huge market fluctuations following the Covid resurgence. Shrinking refining margins have forced them to cut operating rates and even re-sell some cargoes of crude.

The current logjam compares with around 10 million barrels of oil from Russia, Iran and Venezuela that were sitting off the Chinese coast at the start of the year, according to Kpler. China’s apparent oil demand averaged around 13.7 million barrels a day in January and February before the current virus outbreak, Bloomberg calculations based on official data show.  

Average waiting times for ships at Chinese ports have risen to 5.85 days now from 4.46 days in the week starting March 28, it said. For suezmax vessels, which can hold up to 1 million barrels of crude, they have surged to 15 days from 4.46 days last week.

Another analytics company, Vortexa Ltd., said there are around 16 million barrels of Iranian and Venezuelan crude in tankers waiting off China. Some 1 million barrels of oil a day was sent from the Russian Far East to Asia in March, with China taking around 70%, according to Emma Li, an analyst at Vortexa. 

There are 10 aframax-sized vessels — which can carry about 100,000 tons of oil each — from Russia’s Far East that are showing China as their destination in the first half of this month, Li said. These cargoes were likely to be purchased before the invasion of Ukraine, she said.