China is quietly increasing purchases of low-priced Russian crude oil

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Singapore — China has quietly surged oil purchases from Russia, with Western buyers withdrawing from trading with Russia after invading Ukraine in February, according to shipping data and oil traders told Reuters. Fill in the blanks by.

The move by the world’s largest oil importer takes place a month after Russia’s first cut in supply, fearing it could openly support Moscow and expose its state-owned oil giant to sanctions. ..

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China’s Russian offshore oil imports jumped to a record 1.1 million barrels / day (bpd) in May, with 750,000 barrels / day in the first quarter and 800,000 barrels in 2021, according to Vortexa Analytics estimates. / Increases from day.

Unipec, the trading arm of Asia’s top refiner Sinopec Corp, led the purchase with Zhenhua Oil, a unit of China’s defense conglomerate Norinco, according to a report by ship brokers seen by Reuters and five traders. I am. Hong Kong-registered company Livna Shipping Ltd has also recently emerged as a major shipper of Russian oil to China, according to traders.

China Petrochemical declined to comment. Zhenhua and Livna did not respond to requests for comment.

These companies are filling the holes left by Western buyers after Russia’s invasion of Ukraine, which Russia calls a “special military operation.”

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The United States, Britain and other major oil buyers banned Russia’s oil imports shortly after the invasion. The European Union has finalized further sanctions, including a ban on Russia’s oil purchases. Many European refiners have already stopped buying from Russia for fear of violating sanctions and eliciting a negative reputation.

Two of the world’s largest commodities traders, Vitol and Trafigura, are Russia’s largest oil prior to EU regulations in force on May 15, unless they are “strictly needed” to secure EU energy demand. We have phased out purchases from producer Rosneft.

“After the withdrawal of Vitol and Trafigura, the situation began to change dramatically, creating a vacuum that could provide value and could only be filled by companies trusted by Russian counterparts.” He told Reuters, a Chinese trader who asked him not to name him.

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According to traders, Russia’s low oil prices (spot difference is about $ 29 less per barrel compared to before the invasion) will benefit Chinese refiners facing margins shrinking during the economic slowdown. is. Prices are well below competing barrels in the Middle East, Africa, Europe and the United States.

China receives approximately 800,000 barrels / day of Russian oil individually via a pipeline through a deal with the government. This will bring imports in May to about 2 million barrels / day, 15% of China’s total demand. For Russia, oil sales have helped mitigate the economic impact of sanctions.

State buyers

A state-owned Chinese company, led by Sinopek and Jenfa, plans to purchase two-thirds of Russia’s flagship export-grade ESPO (Eastern Siberia-Pacific Oil Pipeline) blend in May, starting with one-third before the invasion of Ukraine. It has increased. A person who is watching the flow carefully told Reuters. Russia exported about 24 million barrels in May, 6% more than in April.

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According to three traders, Sinopec alone bought at least 10 ESPO shipments in May, doubling pre-intrusion volumes, and some deals recorded $ 20 a barrel below benchmark Dubai Crude on a FOB Cosmino basis. Discount has been reached.

Sinopec, Zhenhua and Livna are moving more oil from both Russia’s Baltic port in northwestern Europe and its far eastern export hub, Kozmino.

Zhenhua, the smallest state-owned Chinese oil trader, chartered a ship to move Russian oil. According to shipbuilder reports Refinitiv and Vortexa, North Petroleum International Co, a division of Zhenhua, loaded two ESPO cargoes in early May and the Baltic Sea port of Ustilga in late April and mid-May. We loaded two more Ural cargoes from. And traders.

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Norinko, one of the world’s largest defense contractors, entered oil more than 20 years ago and won a concession to produce oil in Iraq in the 1990s. Its trading instrument, Zhenhua, has recently expanded to investing and trading in gas terminals.

Zhenhua purchased part of Russia’s oil supply through the Swiss-based Paramount Energy. This is a trader specializing in oil marketing from independent Russian and Kazakh producers primarily to private end users.

Paramount Energy has been selling ESPO to independent refiners in China on a regular basis since 2016, and after establishing a Beijing office in 2020, expanded its business in China by expanding sales to Jenfa. Trading executives say.

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In response to Reuters’ question, Paramount Energy did not deal with the trade that took place after Russia’s invasion of Ukraine. “We have customers in China with ESPO crude oil cargo delivered under a long-term contract established well before February 24,” he said, the day of the invasion. “This crude oil is supplied exclusively by independent oil producers and non-state-owned enterprises, as it has long been our policy.”

Livna, previously not a major player in bringing Russian oil to Asia, has loaded more than 7 million barrels of Russian Urals and ESPO crude to China since late April, according to Vortexa and Refinitiv ship tracking data. ..

According to shipping data, Rivna, formerly a regular shipper of export-grade Urals focused on Russia’s Europe within Europe, was Shandong, a hub for China’s independent refiner in early 2020. Started sending Russian oil to the province.

So far, as of May, according to shipping data, Livna is stacking eight cargoes destined for China, or nearly 6 million barrels of ESPO oil, from one or two cargoes each month. According to traders, Rivna loaded at least two Ural cargoes from a Baltic port in May and delivered them to China.

According to traders, the withdrawal of western traders also attracted new entrants to the Shandong Port International Trade Group, a government-backed state trader.

(Report by Chen Aizhu and Florence Tan from Singapore, and edited by Reuters by Bill Rigby)