Russian Oil Prices Jump Ahead Of Export Cut

The price of Russian ESPO crude, which goes to China, rose to the highest in seven months as Chinese buyers rushed to buy it ahead of an announced 500,000-bpd cut in exports next month.

Per Reuters, ESPO is currently trading at a $4 per-barrel discount to Brent crude, which puts it $6 above the G7 price cap. Before the announcement of the export cut, ESPO was trading at a discount of $4 to Brent crude, still above the price cap.

ESPO has been trading consistently above the price cap because it is the preferred Russian blend of Chinese refiners. The ESPO blend is lighter and sweeter than the flagship Urals blend, which has normally traded at a more significant discount to Brent crude. This discount only deepened after the imposition of sanctions on Russian crude exports.

Yet even the discount of Urals to Brent has narrowed lately, with the blend last trading at over $55 per barrel, compared with close to $76 for Brent at the time of writing.

The trades with ESPO above the price cap suggest that, for months now, Russia has had the tankers and insurance firms to provide coverage and shipping for the ESPO grade, which can reach China from Russia’s Far East in less than a week.

Demand is on the rise, too, as Chinese independent refiners get their new import quotas.

"The price increase comes as the private refiners have just received new crude imports quotas. They are now out for shopping and Russian oil remains relatively cheap," an unnamed trader told Reuters.

Earlier this week, meanwhile, Russia announced it would further reduce its supply of oil.

“As part of the efforts to ensure a balanced market, Russia will voluntarily reduce its oil supply in August by 500,000 barrels per day by cutting its exports to global markets by that quantity,” Russia’s Deputy Prime Minister and top OPEC negotiator Alexander Novak said earlier this week.

The announcement came minutes after Saudi Arabia said it would extend its unilateral oil production cut of 1 million bpd into August. 

Novak went on to say that the cut in exports would also mean a cut in production but Reuters noted in a report earlier this week that Russian oil supply for the international markets would be already lower this month as refineries ramp up after the end of maintenance season.

By Irina Slav for Oilprice.com

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