29.06.2022
Chicago 11, Melborne City, USA
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China gradually increases purchases of cheap Russian oil By Investing.com

After the public refusal of Russian oil by Western buyers, China began to quietly increase its purchases of oil from Russia at favorable prices, filling the vacuum, writes Reuters.

China has taken the move a month after it initially cut oil supplies from Russia over fears that its open support for Moscow could expose China’s state oil giants to sanctions.

Russian offshore oil imports to China jumped to a near-record 1.1 million bpd in May, up from 750,000 bpd in the first quarter and 800,000 bpd in 2021, according to Vortexa Analytics estimates.

Unipec, a trading arm of China’s leading oil refiner Sinopec Corp, is the biggest buyer along with Zhenhua Oil, a division of Chinese defense conglomerate Norinco.

Another company, Livna Shipping Ltd, registered in Hong Kong, has also recently become a major supplier of Russian oil to China.

Key buyers from the US, the UK and some others banned the import of Russian oil shortly after Russia launched its special operation in Ukraine. The European Union is finalizing another round of sanctions, including a ban on the purchase of Russian oil, and many European refineries have already stopped purchases from Russia, fearing sanctions or negative publicity.

Vitol and Trafigura, the world’s 2 largest commodity traders, have phased out purchases from Rosneft (MCX:ROSN) ahead of an EU rule that came into effect on May 15 banning purchases of Russian oil unless it is “strictly necessary” to secure energy needs of the EU.

After the departure of these key buyers, a vacuum was created that could only be filled by companies that enjoy the trust of their Russian counterparts, primarily from China.

These buyers are enjoying a huge price advantage: traders say the spot difference is about $29 per barrel compared to the price before the special operation, which is a huge boon for Chinese refineries, which are facing shrinking margins in the face of a slowing economy. This price is significantly lower than that of suppliers from the Middle East, Africa, Europe and the USA.

China receives about 800,000 barrels a day of Russian oil through pipelines under government deals, and in May imports totaled almost 2 million barrels a day, or 15% of China’s total demand. For Russia, the sale of oil is also a huge help to soften the blow from the sanctions.

State-owned Chinese companies led by Sinopec and Zhenhua intend to buy two-thirds of ESPO’s flagship Russian Far East export blend in May, compared to one-third they bought before the special operation.

In May, Russia exported about 24 million barrels, which is 6% more than in April.

Sinopec alone intends to buy at least 10 ESPO shipments in May, and some of the deals will reach a record $20/bbl discount compared to benchmark oil from Dubai.

However, Sinopec, Zhenhua and Livna receive oil not only from the Far Eastern export center of Kozmino, but also from Russian ports on the Baltic Sea.

Zhenhua bought part of the Russian oil supply through the Swiss company Paramount Energy, a trader specializing in the sale of oil from independent Russian and Kazakh producers, mainly to private end-users. The trader has been regularly selling ESPO oil to independent Chinese refiners since 2016, and has recently expanded its business in China by increasing sales of Zhenhua oil.

And Livna, which previously was not a significant player in the transportation of Russian oil to Asia, since the end of April has loaded more than 7 million barrels of Russian Urals and ESPO oil bound for China.

In early 2020, it began shipping Russian oil to Shandong Province, China’s independent refining hub.

The departure of Western traders has also brought a new player into the business, Shandong Port International Trade Group, a trader backed by the Chinese government.

– Materials from Reuters were used in the preparation

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