US sanctions second Chinese refinery as its maximum pressure campaign accelerates

Executive Summary

Market & Trading calls

Americas:

• Neutral on WTI prompt structure though tightening sweet market could support prices later in Q2.
• Bearish on Guyanese flows to Europe as shortening loading programs for June could reduce flows, potentially supporting Dated Brent during peak summer demand and North Sea maintenance.
• Slightly bearish on sour Latin American diffs as prices continue to calibrate lower after anticipated tariffs on Canadian/Mexican sour grades failed to materialize, impacting the competitiveness of grades like Castilla.

Europe and Africa:

• Bullish on Turkish imports of Russian oil as Tupras resumes buying.
• Neutral on Azerbaijan’s crude and condensate output until 2026, after which supply should start steady decline.
• Bearish on light crude differentials in the Med amid ample Kazakh oil availability.

Middle East - Asia - Russia:

• Cautiously optimistic on a potential upside risk to crude prices, with uncertainty remaining high as the US sanctions a second Chinese teapot refinery due to its involvement with Iran.
• Neutral on OPEC+ production over Q2, despite the updated compensation cut plan, with Kazakhstan expected to overproduce vs. their target.
• Bullish on Asian market structures this summer as uncertainty regarding Iranian crude flows and seasonally rising Middle Eastern crude demand keeps balances tighter over Q2.

Middle East and Asia: Asian markets to remain tight as the US sanctions second teapot refinery

Despite crude prices dipping below $70/bbl—well under the fiscal breakeven points required by many key OPEC+ members, such as Saudi Arabia's estimated $90/bbl for 2025—the group is still signalling intentions to proceed with unwinding production cuts (as detailed in the following section). While Kpler’s forecast anticipates the Dubai benchmark will remain near current subdued levels over the coming year (see chart below), upside risks to global crude prices are increasingly apparent, suggesting the potential for a tighter market ahead despite current pressures.

Positive macroeconomic signals emerged in Q1, particularly from China, where year-on-year GDP growth of 5.4% surpassed both market consensus (5.1%) and the government's annual target. Concurrently, China has expressed openness to renewed economic talks with the US, which could relieve downward pressure on global trade and economic growth. However, this potential easing of trade tensions contrasts with escalating US pressure on Iran's oil exports, evidenced by recent sanctions targeting a second Chinese independent refinery (Shandong Shengxing Chemical Co., Ltd.) for importing Iranian crude. While Kpler maintains its view that Iranian supplies will decrease by approximately 500 kbd by late 2025, the risk of more severe disruptions looms, particularly given stated political ambitions in the US to potentially drive Iranian exports towards zero.

Dubai price forecast, $/bbl

Source: Kpler

OPEC+ updated its compensation cut framework this week, detailing stricter requirements for seven members needing to offset previous overproduction. Driven by ongoing compliance issues (notably from Kazakhstan) and recent oil price declines, the revised plan mandates a total reduction of 139.2 million barrels between April 2025 and June 2026. Required monthly cuts are now set within a tighter range of 196 kbd to 520 kbd, escalating to the peak level in September 2025 (see table below), representing a more demanding schedule than previously outlined.

Under this intensified plan, Iraq shoulders the largest compensation burden with an average cut of 129 kbd, followed by Kazakhstan at 87 kbd. This stricter enforcement reflects internal group pressure on compliance and serves to partially moderate planned supply increases, such as May's 411 kbd voluntary cut return, which Kpler calculates would net closer to a 250 kbd rise if compensation cuts are fully met. However, achieving full conformity remains questionable, particularly for Kazakhstan. Enforcement success will be a key focus for the group, especially with prices below $70/bbl, leading into the May 5th meeting to decide June's output policy.

OPEC+ compensation cut plan, kbd

Source: OPEC

The above-mentioned developments collectively point towards sustained uncertainty and tightening conditions across Asian crude markets—a trend already reflected in the Dubai M1-M2 spread, which held near $2/bbl this week, slightly firmer than the prior week. A potential tightening of regional crude markets should also keep the Brent-Dubai EFS narrow over the summer months.

Besides potentially lower Iranian crude exports and OPEC+ compensation cuts from several Middle Eastern members, tighter Asian balances will come from a rise in Saudi seasonal crude burning, expected to climb from ~400 kbd in April to a peak of 700 kbd in August. This contrasts with European balances, which are set to remain marginally longer compared to year-ago levels, aided by new supply from Norway’s 220 kbd Johan Castberg field coming online. Consequently, we expect the Brent-Dubai EFS to remain near current levels for the time being.

Regional market structures, $/bbl

Source: Argus Media

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• Executive Summary:
  • Market & Trading Calls
• Americas: US crude outflows accelerate to one-year high
• Atlantic Basin: Higher Russian oil flows to Turkey ahead
• Middle East and Asia: Asian markets to remain tight as the US sanctions second teapot refinery

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