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China soaks up Iran crude as Japan, Korea cut back

Filed on June 5, 2006

SINGAPORE - China has boosted imports of Iranian crude by a quarter so far this year, making up for oil shipments cut by refiners in Japan and South Korea due in part to fears over Teheran’s stand-off with the West, national data shows.

The official figures suggest Iran, which has started to hint it might use its oil as a tool in the row with the United States and other countries over its nuclear programme, has a ready buyer in China, which has been hesitant to confront Teheran.

China’s crude imports from Iran are up 74,000 barrels per day (bpd) in the first four months of the year, according to official data released last week.

Data from Japan show a 14 percent or 97,000 bpd drop in Iranian imports, at least a quarter of that attributable to top refiner Nippon Oil’s decision in March to curb purchases due to the rising risks.

That decision was the first outward sign that customers were moving to limit their dependence on Iranian supplies.

South Korean imports of Iranian crude in January-April were down about 7 percent or 16,000 bpd.

While many Iranian officials have said the country will not use oil as a political weapon, supreme leader Ayatollah Ali Khamenei said on Sunday that its energy flows would be ”seriously endangered” if the United States made a “wrong move” toward Iran.

While monthly data tend to be volatile, the trend of the first four months of 2006 may indicate a broader-than-expected reaction by anxious refiners to the risks attached to Iranian crude.

But there are also commercial reasons for the fall in Japanese imports from Iran.

State oil firm Saudi Aramco last June completed its purchase of a 15 percent stake in Japan’s fifth-largest refiner Showa Shell Sekiyu K.K., which industry sources say allowed the kingdom to boost supplies to the refiner at the expense of Iranian crude.

Saudi exports to Japan rose 15 percent in the first four months of the year to 1.4 million bpd, government data show.

A shift in Iran’s sales to China could serve many interests. Public refiners in North Asia would reduce their exposure to riskier supplies; China’s state-owned refiners would avoid raiding edgy spot markets by securing more long-term contracts; Iran would tighten economic ties with a key U.N. Security Council member.

It remains to be seen if the trend continues, however, as most refiners surveyed by Reuters two months ago said they had no plans to cut their annual contractual volumes with Iran, risking a rift with the world’s fourth-biggest exporter.

While imports by Japan and South Korea have fallen on a seasonal basis, they are still running above last year’s average.

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