Chinese refiners are canceling Russian oil cargos and adopting a wait-and-see attitude after the latest U.S. sanctions on Russia’s oil industry.
Bloomberg reports, citing traders, that state-owned majors including Sinopec and PetroChina had canceled previously ordered Russian oil cargos, while the so-called teapots, or independent refiners, had stopped buying Russian crude to avoid getting penalized for violating the U.S. sanctions.
The publication cited Rystad Energy as estimating that some 45% of Chinese imports of Russian crude have been affected by the sanctions. The figure represents some 400,000 barrels daily. As a result of the forced change in buying habits, Russian crude is trading at a deeper discount, with the flagship Urals at $57.99 per barrel at the end of last week. China mostly imports another blend, the Eastern Siberian-Pacific Ocean or ESPO, and the cargo cancellations have pushed its price lower, Bloomberg noted.
Russia became the largest single oil supplier to both China and India over the past three years, thanks to the discounts its oil carries amid Western sanctions. Now, both China and India need to find alternatives to Russian crude, of which there are plenty, but at usually higher prices. China has made itself a supply cushion by importing more crude than it is using this year, and building more storage capacity. Plans are to have 11 new storage sites with a combined capacity of 169 million barrels by the end of 2026.
India is having a more challenging time replacing Russian oil supply. Russia accounts for a third of its total oil imports, which in turn account for some 85% of consumption. Due to its overwhelming dependence on imported crude, India is especially vulnerable to price differences and is especially motivated by discounts when making buying decisions. Even Indian refiners are reportedly turning away from Russian crude as well, to avoid U.S. sanction penalties.
By Irina Slav for Oilprice.com
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