(BEIJING, CHINA) – Some Chinese refineries have increased purchases of sanctioned Russian crude oil even as discounts on those barrels narrow, according to trade sources. The shift comes as the escalating conflict involving Iran disrupts oil supply from the Middle East.
Reuters reported that independent Chinese refiners had earlier made rare purchases of non sanctioned Middle Eastern crude at steep discounts. Those deals took place when exports surged during a short lived truce between the United States and Iran. After attacks resumed and shipping was blocked in the Strait of Hormuz, however, supply through that strategically vital route came under threat again.
Faced with these disruptions, Chinese refiners have stepped up buying from their largest supplier, Russia. They have also restarted talks on purchases of Iranian crude, traders said.
Three trade sources told Reuters that two large Chinese refineries buying oil for September delivery had taken most of the Russian ESPO Blend crude loading from the Pacific port of Kozmino. Two of the sources said these cargoes were sold at discounts of between 1 and 3 US dollars per barrel to the ICE Brent price. For August deliveries, the discount on ESPO had stood at about 4 dollars per barrel. Steady demand from India, another major buyer of Russian oil, is also supporting prices.
The head of India’s Bharat Petroleum Corp said on Thursday that the company had increased the volume of Russian crude it processed during the June quarter. He added that traders are no longer offering discounts on the sale of Russian feedstock.
A trader at a Chinese refining company told Reuters that ESPO crude was a more reliable and cheaper choice given the uncertainty in the Middle East.
Reuters has previously reported that India has boosted imports of Russian oil to record volumes. That has helped Russia keep exports flowing at a time when its own refining industry faces difficulties. Separately, Kazakhstan sharply reduced its oil output after a drone attack and the closure of an export terminal.