Tanker Update: May 2020 – A New Blend of Iranian/Malaysian Oil for China
News in May was dominated by Iran’s dramatic and ultimately successful delivery of 1.5 million barrels of gasoline to Venezuela, defying U.S. sanctions and giving the White House a poke in the eye. Beyond the quick rhetorical victory, though, Iran’s total observed crude and condensate exports actually dropped significantly – Bloomberg estimates a drop of almost 50% with total observed shipments of crude and condensates falling from 404k bpd in April to 228k bpd in May.
Most of what is still being exported is ending up in China where, unlike the bold and brazen Venezuela operation, deliveries are discreet and “dark” (turning satellite transponders (AIS) off), and often involve a ship-to-ship (“STS”) transfer with another vessel in the Strait of Malacca. To further obscure the Iranian origin, oil is now apparently being blended with Malaysian oil to form a “Malay blend.” Last month, for example, Iranian “Suezmax”-sized vessel SARAK appeared in the Strait of Malacca on May 5 with about 1m barrels of crude and signaled its destination as Ningbo, China. The next day, SARAK disappeared from tracking east of Singapore and reappeared in the same area on May 10 with a lower draft, indicating the cargo had been discharged to another vessel after possible blending.
In August 2019, a new blend of crude oil emerged from Malaysia called Singma. According to IHS Markit’s OPIS, a new blend of crude oil is being offered in the market for China as traders use supertankers anchored in waters off Malaysia and Singapore, as well as onshore tanks, to mix a variety of grades for export. The moves through STS involve multiple loadings and discharges onboard ultra and very large crude carriers (ULCCs and VLCCs), which help mask the origin of the crude to create a new blend that is then sold overseas, especially to “teapot” (small, semi-independent) refiners in China. As Reuters recently confirmed, “Unofficially, one independent Chinese refiner has been a regular buyer of shipments that may have been blended and transhipped via Malaysia...” S&P Global notes:
China’s small independent refineries have driven a new trend in crude oil flows in 2019 – record high imports of blended grades from Malaysia…The trade flow in itself is unusual – Malaysian oil production is on the decline, many of the blends contain grades from undisclosed origins and their suppliers are secretive about the exact composition. The timing has also raised eyebrows – it coincides with collapsing margins at Chinese independent refiners and the removal of favored Venezuelan and Iranian crudes from regular trading channels due to sanctions. New Malaysian blends are perfectly timed substitutes to fill the gap.
Last month, for example, Iranian “Suezmax”-sized vessel SARAK appeared in the Strait of Malacca on May 5 with about 1m barrels of crude and signaled its destination as Ningbo, China. The next day, SARAK disappeared from tracking east of Singapore and reappeared in the same area on May 10 with a lower draft, indicating the cargo had been discharged to another vessel after possible blending.
Similarly, Iranian Suezmax STARK I appeared in the Strait of Malacca on May 16 with a draft indicating it was full of about 1m bbl of crude. The vessel disappeared from tracking east of Singapore on May 17 and reappeared heading west on May 22 with a lower draft, again indicating the cargo had been discharged. Again, we believe this vessel engaged in a STS transfer to ultimately create a “Malay blend,” before finally making its way to China.