China’s Oil Giants Race to Secure Crude as US Sanctions Threaten Russian Oil Supply Chains

China’s state-owned oil giants and private refiners are scrambling to secure crude supplies from the Middle East, Africa, and the Americas, as US sanctions on Russia and Iran threaten to disrupt global fuel flows, Bloomberg reported on January 14.

Oil companies like Cnooc, Shandong Yulong Petrochemical Co., and Jiangsu Eastern Shenghong Co. are urgently seeking prompt crude deliveries for February, traders revealed. Multiple crude grades are under consideration as buyers move swiftly to ensure stable fuel supplies.

The scramble follows concerns that China’s smaller private refiners, known as ‘teapots,’ may be forced to slash operations if they lose access to discounted Russian and Iranian crude. Already struggling with narrowing margins, these refiners, concentrated in Shandong province, face added challenges under the new US sanctions.

“If smaller refiners falter, state-owned oil companies may need to step in to stabilize the market and secure China’s energy supply,” a trader familiar with the matter explained. Larger refiners are expected to absorb market share while ensuring domestic availability of fuels like diesel, a critical priority for Beijing.

Washington’s latest sanctions targeted over 180 tankers and some of Russia’s largest crude exporters. This has sent shockwaves through Asian oil markets, with buyers, port operators, and shippers scrambling to adapt.

Some vessels carrying Russian ESPO  crude bound for Shandong are now anchored offshore, awaiting clarity on the next steps.

The urgency among Chinese buyers has escalated in recent weeks, with Iranian crude prices rising and US sanctions intensifying. Spot premiums for Oman crude, a widely traded medium-sour grade, jumped to nearly $3 a barrel this week, compared to $1.50-$1.70 last week.

Meanwhile, freight rates for supertankers traveling from the Middle East to China have surged.

TotalEnergies SE recently sold prompt cargoes of Oman and UAE’s Upper Zakum crude to buyers such as Cnooc and Rongsheng Petrochemical Co. Brazilian Lapa crude was also offered to Chinese importers.

Earlier, reports emerged that at least 65 Russian oil tankers were forced to anchor and suspend shipments after the US imposed its toughest sanctions on Russia’s oil and gas sector.