Oil prices drop as allies woo China

Iran is being forced to discount its already cheap crude even more as a top ally gains a bigger foothold in the key Chinese market.

China has become an important destination for Russian oil as Moscow seeks to maintain flows following the fallout from its invasion of Ukraine. That has led to increased competition with Iran in one of the few remaining markets for its crude shipments, which have been significantly curtailed by US sanctions.

Russian exports to China surged to a record in May, with the Opec+ producer overtaking its cartel ally Saudi Arabia as the top supplier to the world's biggest importer. While Iran has cut its oil prices to remain competitive in the Chinese market, it is still maintaining robust flows, likely in part due to rising demand as China eases strict virus restrictions.

"The only competition between Iranian and Russian barrels may end up being in China, which would work entirely to Beijing's advantage," said Vandana Hari, founder of Vanda Insights in Singapore.

"This is also likely to make the Gulf producers uneasy, seeing their prized markets taken over by heavily discounted crude."

Iranian oil has been priced at nearly US$10 (HK$78.5) a barrel below Brent futures to put it on par with Urals cargoes that are scheduled to arrive in China during August. That compares with a discount of about US$4 to US$5 before to the invasion.

Bloomberg