China continues to buy discounted Russian crude and is gobbling up the ESPO crude grade from Russia’s Far East, upending global trade flows.
ESPO, which Russia ships from its Far Eastern ports, is being offered at a 10-percent discount compared to similar-quality crudes from Brazil or West Africa, traders familiar with the Chinese buying told Bloomberg on Wednesday.
ESPO goes for around $1-$2 discount per barrel to the international benchmark Brent, while Brazil’s Lula and Sapinhoa crudes, for example, are being offered at a $10 per barrel premium over Brent, the traders told Bloomberg.
The high demand for the cheaper Russian crude relative to rival grades has already reduced Chinese imports from West Africa, and even forced Iran to additionally discount its crude going to China—pretty much the only current buyer of Iranian oil, which continues to be under U.S. sanctions.
ESPO is also attractive in China because shipment from Russia’s Far Eastern port of Kozmino takes around four days, compared to two months for a cargo delivery from Brazil.
ESPO is among the favorite blends of China’s independent refiners, the so-called teapots, and they have lifted a lot of that grade over the past weeks, traders told Bloomberg.
The high Chinese demand for cheaper Russian crude was evident in the Chinese customs data released on Wednesday, which showed that Russia remained China’s top oil supplier ahead of Saudi Arabia for a second month running, while Saudi oil imports slumped.
In June, China imported around 1.77 million barrels per day (bpd) of Russian oil, below the previous month’s record, but still way ahead of shipments from Saudi Arabia, according to the customs data cited by Reuters. Chinese oil imports from Saudi Arabia slumped to 1.23 million bpd, from 1.84 million bpd in May, and were 30% below the June 2021 imports.
In May, China imported a record volume of Russian crude, with arrivals surging by 55 percent to nearly 2 million bpd. This made Russia the top oil supplier to the world’s leading crude importer—putting it ahead of Saudi Arabia for the first time in a year and a half.
By Tsvetana Paraskova for Oilprice.com
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