Chinese oil buyers pay premium for Canadian crude amid Iran war

An oil tanker is loaded at the Westridge Marine Terminal at the end point of the Trans Mountain Pipeline System in Burnaby, B.C. Photo by James MacDonald/Bloomberg files

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Chinese buyers are paying a premium for Canadian oil as the Iran War curtails supplies from their main sources in the Middle East.

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Canadian barrels now have a US$2 to US$3 advantage in Asia because of increased rates to charter a tanker and higher risk premiums for insurance in the Middle East, said Patrick O’Rourke, managing director of ATB Cormark Capital Markets. On Monday, heavy crude shipped off the Trans Mountain pipeline for China traded at an 80 cent premium to ICE Brent for the first time since Argus Media introduced the price September 2024.

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In the past two weeks at least five ships were booked on a preliminary basis to deliver crude from Alberta’s oilsands to China, according to shipping reports compiled by Bloomberg. The vessels were chartered by companies including Chinese trader Unipec America Inc., Shell PLC and Exxon Mobil Corp.

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Those bookings indicate shippers are willing to pay to transport oil on a pricier spot basis. Shipping costs have soared by more than 70 per cent since the start of the month, with the cost to transport Trans Mountain oil at about US$10 per barrel, compared with US$5.80 earlier, according to Bloomberg calculations.

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The push for the safety of Canada is a boon for the country’s oil producers after nearly a decade when investors and international oil companies shifted their focus away from the oilsands to other markets, including the US shale patch.

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“Where we see some opportunity for Canada is in a re-rating of the assets of the companies,” O’Rourke said in Calgary last week. “We’re seen as consistent safe haven, stable jurisdiction.”

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The Iran War that started more than 10 days ago has wreaked havoc on the global oil market, bringing to a near halt tankers coming out of the Strait of Hormuz, a chokepoint where as much as 20 per cent of world crude supply flows.

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On Monday, crude futures briefly surged above US$100 a barrel for the first time since June of 2022, before falling back down to below US$90. The world’s biggest oil exporter, Saudi Arabia, has started reducing oil production, along with the United Arab Emirates, Kuwait and Iraq.

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The war is likely to shift perceptions of Middle Eastern countries as stable sources of oil. Asian buyers would “probably be trying to secure some supply already,” O’Rourke said. “There’s clearly demand coming from that region of the world for the barrels.”

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Chinese refiners were already buying increasing volumes of high-sulfur, dense crude from Canada’s oilsands since the start of the Trans Mountain expansion pipeline in 2024, offsetting some volumes from the Middle East such as Iraqi Basrah Heavy. That is poised to continue if the war drags on, Susan Bell, senior vice president of downstream research at Rystad Energy in Calgary, said by phone.

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“If it gets to the point where Asia truly is pinched on crude oil supply, then I would really expect to see Trans Mountain pipeline spot capacity fill up and that pull into the Asian market,” she said.