China will halve its crude oil imports from Iran in March compared to average monthly purchases a year ago, as a dispute over payments and prices stretches into a third month, oil industry sources involved in the deals said on Monday, Reuters reported.
China is the top buyer of Iranian oil, taking around 20 percent of total exports, but it has since January cut purchases by around 285,000 barrels per day (bpd), or just over half of the total daily amount it imported in 2011.
Negotiators from both nations, however, are expected to hold talks as early as this week in Beijing to resolve the payments dispute, the sources said, adding that the European Union embargo on Iranian crude gave China an advantage in any talks.
Officials from Sinopec Corp, Asia's top refiner that processes nearly 90 percent of China's Iranian oil purchases, are expected to meet counterparts from the National Iranian Oil Company (NIOC), the sources added.
Last year, China imported 27.76 million tonnes, or about 555,000 bpd, of Iranian crude, a record amount and a 30 percent increase on the previous year.
Tensions between Iran and the West rose last month when European Union leaders agreed to embargo Iranian oil by July and to freeze the assets of Iran's central bank, joining the United States in a new round of measures aimed at discouraging Tehran's nuclear development programme.
Iran has warned that it could cut off oil exports to Europe before July 1, and also threatened to close the vital Strait of Hormuz shipping lane, a move Washington said it would not tolerate.
The reduced volumes from Iran coincide with a drop in Sudanese crude oil supplies due to a dispute over transport fees between the north and the newly independent south, but industry sources said Sinopec appeared to be unaffected as it had secured alternative supplies.
Sinopec, through its trading arm Unipec, has already snapped up additional cargoes from Saudi Arabia, Iraq, Russia, Australia and West Africa. The refiner is likely to buy more crude from the spot market to cover March requirements, traders said.
China is also set to boost Iraqi oil liftings by some 50 percent this year versus last.
Analysts said that well-supplied China is unlikely, then, to become the main buyer of any surplus crude that Iran decides to sell to ease the effect of sanctions, despite the strong political and trade ties between the two nations.
Iranian oil minister Rostam Qasemi, however, is due to visit China within the next 10 days to discuss a range of energy issues, according to a report on the Iranian oil ministry's website published on Saturday.
"Extra supplies from Saudi Arabia would be the most obvious alternative (to Iranian crude), but China has also been buying greater volumes of other grades like (Russia's) ESPO on the spot market, and been prepared to pay higher premiums for them," said a Singapore-based Western trader.
Iran is China's third-largest supplier, after Saudi Arabia and Angola.
The 2011 supplies from Iran included China's first term deal for about 75,000 bpd of Iranian South Pars condenstate, a very light crude oil that Sinopec bought from NIOC to feed its petrochemical plants.
Edited by: S. Isayev