China’s Hengli Petrochemical has cancelled millions of barrels of crude oil purchases, including cargoes from West Africa, as U.S. sanctions continue to disrupt the operations of one of the country’s largest independent refiners.
According to a Reuters report, Hengli has scrapped deals covering at least 6 million barrels of crude oil, a rare move in the global oil market where refiners seldom cancel shipments after contracts have been signed.
The cancellations include 2 million barrels of West African crude already delivered to third-party storage facilities in eastern China, as well as 4 million barrels of Middle Eastern crude scheduled for delivery in July. One of the Middle Eastern cargoes has since been resold, according to one of the sources.
The development comes only weeks after reports that Hengli had begun sourcing crude from West Africa and the Middle East in an apparent effort to reduce its dependence on Iranian oil and improve its standing with U.S. authorities.
Sanctions continue to bite
The United States imposed sanctions on Hengli Petrochemical in April, accusing the company of purchasing Iranian crude oil in violation of U.S. restrictions.
Hengli denied any dealings with Iran shortly after the sanctions were announced and indicated it would pursue legal avenues to be removed from Washington’s sanctions list.
Last week, the U.S. temporarily eased restrictions on Iranian oil exports for 60 days as part of an interim peace agreement. While Iran has since accelerated crude exports, uncertainty remains over which refiners are willing or able to purchase those supplies under the temporary waiver.
Refinery output falls
The sanctions have made it increasingly difficult for Hengli to secure replacement crude from mainstream suppliers.
Industry sources say the company has been forced further to reduce operations at its 400,000-barrel-per-day refinery in northeastern China as inventories decline.
One of the refinery’s two 200,000-barrel-per-day crude distillation units was shut down in late June, reducing overall operating rates to about 50%. The refinery had been operating at around 70% capacity earlier in June and above 80% in May.
When announcing its response to the sanctions in April, Hengli said it held more than three months’ worth of crude inventories. However, those reserves are now being depleted as access to non-sanctioned crude becomes increasingly limited.
Implications for West African producers
Although the cancelled West African cargoes represent only a small fraction of the region’s overall exports, the episode underscores the growing influence of geopolitical tensions on global energy trade.
West African producers—including Nigeria, Angola, and Ghana—have increasingly looked to China as one of their most important export destinations, particularly as European refiners reduce long-term dependence on fossil fuels and Asian demand continues to drive global crude markets.
Traders note that large-scale cancellations by refiners are uncommon and could affect future commercial relationships. Sources familiar with the transactions said Hengli had structured its purchases through multiple trading firms to reduce sanctions exposure, making it difficult to determine which suppliers ultimately absorbed the financial impact of the cancelled deals.
Source: africabusinessinsider