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Russian ESPO Oil Price Surges On Strong Chinese Demand

Strong demand in China has sent the price of Russia’s ESPO crude blend surging to the highest in eight months as ESPO discounts to Brent are at their narrowest since the EU embargo on Russian oil imports came into effect in December, multiple trade sources have told Reuters.

The EPSO crude going to China in September is trading at discounts of just $2-$2.50 per barrel to ICE Brent on delivered-ex-ship (DES) basis, according to the sources. This compares with discounts of around $4 per barrel for August.  

“August prices were already very expensive, but we were shocked to see that offers for September cargoes started at $2 discount,” one trade source told Reuters.

Strong demand for cheaper Russian crude from China’s independent refiners, competition from Indian refiners, and the OPEC+ supply cuts, including from Russia, have all combined in recent weeks to lift the price of the ESPO crude.

Early this month, the price of Russian ESPO crude jumped to the highest in seven months as Chinese buyers rushed to buy it ahead of a 500,000-bpd cut in exports Russia has pledged for August.

ESPO has been trading consistently above the G7 price cap of $60 per barrel because it is the preferred Russian blend of Chinese refiners. The ESPO blend is lighter and sweeter than the flagship Russian blend Urals, which has normally traded at a more significant discount to Brent crude.  

Despite the recent jump in ESPO prices, the Russian crude grade remains the cheaper option for Chinese refiners because similar grades from West Africa and Brazil are trading at premiums over Brent for deliveries in September and October.   

If the OPEC+ group further reduces supply, the ESPO price could jump again and narrow the discount to around $1 per barrel, an oil trader told Reuters.


Tanker-tracking data suggests that Russia’s crude oil exports by sea continue to slump and are now well below the February levels and nearly 1.5 million barrels per day (bpd) lower than the recent peak at the end of April.

By Tsvetana Paraskova for Oilprice.com

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