Bloomberg:

Tankers are offloading millions of barrels of Iranian oil into storage tanks at Chinese ports, creating a hoard of crude sitting on the doorstep of the world’s biggest buyer.

Two and a half months after the White House banned the purchase of Iran’s oil, the nation’s crude is continuing to be sent to China where it’s being put into what’s known as “bonded storage,” say people familiar with operations at several Chinese ports. This oil doesn’t cross local customs or show up in the nation’s import data and is not necessarily in breach of sanctions. And while it remains out of circulation for now, its presence is looming over the market.

The store of oil has the potential to push down global prices if Chinese refiners decide to draw on it, even as Organization of Petroleum Exporting Countries and allies curb production amid slowing growth in major economies. It also allows Iran to keep pumping and move its oil nearer to potential buyers.

“Iranian oil shipments have been flowing into Chinese bonded storage for some months now, and continue to do so despite increased scrutiny,” said Rachel Yew, an analyst at industry consultant FGE in Singapore. “We can see why the producer would want to do so, as a build-up of supplies near key buyers is clearly beneficial for a seller, especially if sanctions are eased at some point.”

There could be more Iranian oil headed for China’s bonded storage tanks, Bloomberg ship-tracking data show. At least ten very-large crude carriers and two smaller tankers owned by the state-run National Iranian Oil Company and its shipping arm are currently sailing toward China or idling off its coast. The vessels have a combined carrying capacity of over 20 million barrels.

The bulk of Iranian oil in China’s bonded tanks is still owned by Tehran and therefore not in breach of sanctions, according to the people. The oil hasn’t crossed Chinese customs so it is theoretically in transit.

Some of the crude, though, is owned by Chinese entities that may have received it as part of oil-for-investment schemes. For example, a Chinese oil company could have helped fund a production project in Iran under an agreement to be repaid in kind. Whether this sort of transaction is in breach of sanctions isn’t clear, and so the Chinese companies are keeping it in bonded storage to avoid the official scrutiny it would get once it is registered with customs, according to the people.

Nobody replied to a faxed inquiry to China’s General Administration of Customs.

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