May 23, 2024
China’s Purchases of Key Russian Oil Could Be Lowest Since 2021
, Bloomberg News
(Bloomberg) -- China’s independent oil processors are on track to take the lowest volume of Russian ESPO crude in over three years as refining profits shrink and other grades are offered at cheaper prices.
Refiners have purchased about 12 million barrels of ESPO for June arrival so far this month, which is poised to be the lowest since May 2021, according to Kpler. While the trading cycle is still open for around another week in Asia, weaker Chinese buying has given India an opportunity to take more cargoes.
Earlier this year, independent refiners were snapping up ESPO faster than usual following a standoff with Iranian sellers over price. Since then, some Russian cargoes for April and May arrival have gone unsold, according to traders who asked not to be identified as the information is private.
China’s independent refiners, which are mainly based in Shandong province and are known as teapots, have been grappling with lower refining margins this year that may lead to operational cuts. That means the price they pay for their crude matters even more, making cheaper options attractive.
ESPO was being offered at a discount of less than $1 a barrel to its benchmark on a delivered basis, whereas some crude from Iran and Venezuela was offered at discounts of $6 or more, said traders. India’s purchases of the Russian grade was sharply higher for June than previous months, they added.
ESPO is shipped from Russia’s Far East and the grade is favored for its higher yield of diesel. However, profits from converting crude into the industrial fuel in Shandong have halved this year, dipping below the 10-year average on several occasions, according to a note from Mysteel OilChem.
The industry consultant added that teapots may cut crude processing rates to around 52% of capacity in early June, which would be the lowest since May 2022. Refineries in China are already undergoing planned seasonal maintenance at their plants, crimping consumption of crude.
(Updates with India buying in second par, chart on diesel refining margins.)
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