China’s independent refiners are accelerating purchases of Russia’s Far Eastern ESPO crude blend as Chinese refiners were issued new import quotas and the discount of Russian crude swelled to a record high, traders told Reuters on Tuesday.
After missing out the crude purchasing windows for most of the fourth quarter, amid a lack of quotas allowing imports, the Chinese refiners, especially the so-called ‘teapots’ of the Shandong province, are back on the market hunting for bargain trades.
The discount of the Russian ESPO Blend loading in January has widened to a record $7 to $8 a barrel below ICE Brent upon delivery in Chinese ports, according to three traders who spoke to Reuters.
The discounts have accelerated from $5-$6 per barrel in early December to the record $7 to $8 a barrel now as the latest U.S. sanctions on Russian producers Rosneft and Lukoil are driving down the price of Russian crude grades.
While the teapots accelerate ESPO purchases, China’s state-held major refiners are still hesitant and mostly avoiding spot cargoes of ESPO, a type of light sweet crude shipped from the Far Eastern ports in Russia. The reduced buying from state refiners is also weighing down on the price of the ESPO blend.
Urals, the flagship Russian crude blend, is also suffering from the sanctions implications and India’s reduced intake, and the Urals discount has also widened compared to the price of ICE Brent.
At Chinese ports, the discount for the Urals crude for December loading has exceed $10 per barrel below Brent, trading sources told Reuters.
Despite the latest heavy U.S. sanctions on Russia, the discounts of ESPO and Urals remain too attractive for China’s teapots to pass up.
These refiners now have fresh import quotas issued by the government, which also boost their appetite for cheap crude.
The independent refiners exhausted their previous quotas as early as October and were waiting for a new issuance at the end of the year. Authorities issued quotas of a total volume that was higher compared to last year’s batch.
By Charles Kennedy for Oilprice.com
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