Crude Oil Slides Amid China Weakness and Sanctions Impact

Key Highlights

1. Crude Oil Prices Drop: Brent futures fell to $74.14/b and WTI futures dropped to $70.82/b due to weak Chinese demand.
2. Iranian Crude Export Disruptions: US sanctions on tankers disrupted Iranian oil deliveries to China, impacting refiners with new import quotas.
3. India and Russia Oil Trade: India's Russian crude imports dropped by 55% in November but still accounted for 37% of Russia’s total exports.
4. Expert Opinion: Oil prices may stabilize due to anticipated sanctions on Russian and Iranian oil.

Petroleum Price: Crude Oil Prices Slip Amid Weak Chinese Sales Data

• Crude oil futures in Asian trading on Monday drifted lower as weak sales data from China derailed the previous week's upward momentum.
• Front-month February 2025 ICE Brent futures were trading at $74.14/b (0600 GMT), compared to Friday's settle of $74.49/b. 
• At the same time, January 2025 NYMEX WTI was trading at $70.82/b, down from Friday's settle of $71.29/b. MCX crude oil prices opened at 6013, reflecting a 0.48% decline.

US Sanctions Disrupt Iranian Oil Exports to China

• Iranian crude exports to China have been disrupted by broader US sanctions targeting tankers, according to Vortexa Ltd. This has impacted oil deliveries to China, Iran’s largest customer.
• Some November shipments remain undelivered following similar disruptions in October, according to Emma Li, a senior market analyst. At least 191 Very Large Crude Carriers are now on the US sanctions list, as reported by News.az, citing Bloomberg.
• “Recent US tanker sanctions have led to a slowdown in Iranian vessels calling at Shandong ports, with Chinese buyers increasingly requiring cargoes to be delivered on non-sanctioned vessels,” Li stated.
• These disruptions may pose challenges for some independent Chinese refiners, who were recently granted additional import quotas, as they struggle to fully utilize their allowances.
• In November, China’s crude oil imports hit a 14-month high, but much of the additional volume likely ended up in storage as refinery processing remained subdued. Calculations based on official data indicate China had a crude surplus of about 1.77 million barrels per day (bpd) in November, the second-largest monthly surplus this year after August’s 1.85 million bpd.
• This surplus dampens any bullish sentiment over the rebound in November’s oil imports. Although China does not disclose stockpile flows, estimates suggest a significant portion of imports went into strategic and commercial reserves.

OPEC+ Actions and Sanctions Offer Support to Oil Prices

• India's import of Russian crude oil dropped to its lowest level since June 2022 in November, according to a European think tank's report. However, Russia remains India’s largest oil supplier, followed by Iraq and Saudi Arabia.
• India, the second-largest buyer of Russian crude since the Ukraine invasion, saw imports rise from less than 1% of its total oil purchases to nearly 40% due to price discounts. However, India’s Russian crude imports dropped 55% in November
• Meanwhile, China purchased 47% of Russia's crude exports, followed by India (37%), the EU (6%), and Turkey (6%), as per the Centre for Research on Energy and Clean Air (CREA).
• In November, the discount on Russia's Urals crude widened by 17% month-on-month, averaging $6.01 per barrel below Brent crude. CREA reported that discounts on ESPO crude and Sokol blends were narrowed by 15% and 2%, respectively.

Expert Opinion: Balancing Sanctions and Surplus Supply

• Oil prices are finding some support as the outgoing Biden administration plans further sanctions on Russian oil. The incoming Trump administration is expected to impose harsher sanctions targeting Iranian oil exports.
• Benchmarks have also been buoyed by OPEC+ delaying planned output hikes and emphasizing compliance, including the UAE’s decision to cut January term sales by over 200,000 bpd.