China Buys Least Iran Crude in Five Months Amid Price Talks

China, the biggest buyer of Iranian crude, cut purchases to the lowest level in five months in January even as its total oil imports rose after trading companies in the two nations failed to renew supply contracts.

Imports from Iran fell to 2.08 million metric tons, or about 493,000 barrels a day, according to Bloomberg calculations from data released today by the Beijing-based General Administration of Customs. That's the lowest rate since August and 14 percent less than the average 575,000 barrels bought daily in December. China's total crude imports rose 6.8 percent from a month earlier to 5.5 million barrels a day.

The decline increases pressure on Iran as it seeks alternative buyers for its crude amid U.S. and European Union sanctions imposed because of its nuclear program. China International United Petroleum & Chemical Co., or Unipec, the nation's biggest oil trader, was still negotiating 2012 term supplies last month after the 2011 contract lapsed, two people with knowledge of the talks said Jan. 10.

"The drop in imports appears to be part of the price dispute that Unipec is having with the National Iranian Oil Co.," David Wech, head of research at JBC Energy GmbH, said by telephone from Vienna. China may have held back purchases from Iran to get better prices during the term-supply talks, he said.

2012 Supply Talks

Terms for crude supplies to China this year have now mostly been agreed, three people with knowledge of the talks said today. Some details of the contract between Iran and Unipec are still to be worked out, according to two of the people, who declined to be identified because the information is confidential.

The sanctions against Iran have strengthened the bargaining position of China, which buys about a fifth of the country's crude exports, according to the IEA report. The EU will ban oil imports from Iran starting July 1 in an attempt to halt the Islamic republic's nuclear program. U.S. President Barack Obama signed a bill on Dec. 31 that denies access to the U.S. financial system to any foreign bank that conducts business with the Central Bank of Iran.

China paid an average $110.47 for each barrel of crude it bought from the Persian Gulf nation in January, according to Bloomberg calculations from the customs data. That's 3 percent more than the $107.28 a barrel paid in 2011. The spot price of the Iranian Heavy crude grade averaged $112.71 a barrel in January, 6.3 percent more than last year, according to data compiled by Bloomberg. The price was $118.90 today.

Sanctions Criticism

China, which counted Iran as its third-biggest supplier of crude last year after Saudi Arabia and Angola, opposes trade restrictions against Iran and said sanctions on its oil exports aren't "constructive," Xinhua News Agency reported Jan. 26, citing comments from the Ministry of Foreign Affairs.

Iran fell behind Russia to become China's fourth-biggest supplier in January, the data today showed. Russian shipments to China rose 22 percent to 2.47 million tons from December, while Saudi volumes climbed 1.4 percent to 4.82 million and supplies from Angola slid 2.1 percent to 2.79 million.

China has been taking more seaborne East Siberian Pacific Ocean crude cargoes from Russia and increasing oil deliveries via a pipeline that started in January last year, according to Wech. The pipeline will supply 15 million tons of Russian crude a year to China from 2011 to 2030, Xinhua said.

Imports from Libya gained 158 percent to 736,000 tons, the highest level since March, before an uprising against Muammar Qadaffi curbed that nation's shipments.

Imports Rebounding

Net crude imports this year may rise 5.9 percent from a year earlier to 266 million tons, or 5.3 million barrels a day, according to estimates released this month by China National Petroleum Corp., the nation's largest oil and gas producer. That would be the slowest growth in at least six years.

Iran will increase the volume of crude it ships to China "soon" as the two countries have agreed on pricing and sales methods for an oil contract, Iran's state-run Mehr news agency reported Feb. 16, citing an unidentified official at the National Iranian Oil Co.

China bought an additional 200,000 barrels a day of oil from Iran in "recent months" and may continue to increase imports, Didier Houssin, director of energy markets and security at the IEA, said at a conference in London yesterday.

"China's oil imports from Iran will stabilize," Hong Kong-based Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd., said in an e-mail. "They're unlikely to jump in February during Xi Jinping's visit to the U.S." China's Vice President Xi met with President Obama during a U.S. visit from Feb. 13 to Feb. 18.