Hengli Petrochemical Cancels Over 6 Million Barrels of Non-Iranian Crude Purchases and Cuts Production to 50%
Claire Weston
Hengli Petrochemical has cancelled at least 6 million barrels of West African and Middle Eastern crude contracts, with dwindling inventories forcing its 400,000 b/d northeastern refinery down to 50% utilisation — a direct consequence of U.S. sanctions imposed in April.
Which contracts were scrapped?
The cancellations span three cargoes: 2 million barrels of West African crude already delivered to third-party tanks in eastern China, plus two separate 2-million-barrel Middle Eastern cargoes due in July.
One of the Middle Eastern cargoes has been resold; the exact reason for the cancellations remains unclear.
This means → Hengli walked away not only from forward cargoes but from oil already sitting in Chinese storage — a sign the problem is not "unwilling to buy" but "unable to take delivery."
Why would a major refiner default on contracts?
Hengli was placed on the U.S. sanctions list in April and subsequently routed purchases through multi-layered trading structures — in plain terms = inserting several intermediaries between itself and sellers so no single party directly touches the sanctioned entity.
Reuters had earlier reported Hengli's West African and Middle Eastern purchases as a signal it was trying to get itself removed from the sanctions list — the cancellations came just weeks later, making the timing sensitive.
Multiple traders say short-notice defaults by a major refiner are extremely rare; whether Hengli compensated the sellers is unknown.
How fast is utilisation falling?
Hengli operates two 200,000 b/d crude distillation units. It shut one in late June, dropping utilisation to 50% — down from roughly 70% in early June and above 80% in May.
In plain terms = capacity nearly halved in two months because crude simply cannot get in — sanctions severed the main supply channels, and the non-sanctioned alternatives just fell through.
After the April sanctions, Hengli said it held more than three months of crude inventory. The pace of cuts suggests that buffer is draining fast.
What does this do to Hengli's trading relationships?
A source on the supplier side told Reuters: "This is a blow to their trading team — they had worked hard to open doors with many counterparties, trying to re-enter the mainstream market."
This means → Hengli's earlier effort — using compliant purchases to prove it could operate without Iranian oil — has been undone by the defaults, and rebuilding supplier trust will be significantly harder.
Can the U.S.–Iran interim deal offer a lifeline?
Last week Washington granted a 60-day waiver on Iranian crude sanctions, citing an interim U.S.–Iran agreement.
It remains unclear who will buy Iranian crude under the new waiver framework, and whether Hengli can use this window to replenish stocks and stabilise output is the market's key open question.
This reflects a deeper problem: Hengli's predicament is not simply "no oil available" — its sanctioned status itself is driving counterparties away, meaning even when barrels are on the market, fewer sellers are willing to deal.
Content is for reference only, not financial advice.