China Look to Take Advantage of Iran's Situation by Negotiating New Oil Prices

In a turn of events that could prove disastrous for Iran, it has found its largest exporter, China, recently reducing the amount of oil it buys and looking for other sources, such as Saudi Arabia. China normally accounts for 20% of Iran’s exports, but has reduced the quantity of oil purchased by about 250,000 barrels per day (bpd), just over half of original supplies. It has nothing to do with current US and European sanctions but is more of a negotiating ploy to help increase the bargaining power of China.

They are trying to take advantage of the pressure exerted upon Iran by the West’s sanctions and negotiate lower prices for the oil it purchases from Tehran.

China has bought its new oil from Saudi Arabia, West Africa, Russia and Australia over the last few months. According to OPEC, Saudi Arabia increased production by 360,000 bpd in December and industry sources claim that most of that excess has gone to China.

However despite the new sources of oil, China still need Iranian oil because the OPEC countries such as Saudi Arabia do not have sufficient excess capacity to replace it.

A Beijing-based oil trader commented that "Unipec (the trading division of Chinas top refiner Sinopec) is gambling now. If the Iranian side can compromise and reach a term deal, Unipec will get a large volume of crude at favourable prices, offsetting the premiums it paid to buy alternative oil over the past months."

Let’s see if this gamble will pay off.

By. James Burgess of Oilprice.com