Jan 9, 2023
China Scoops Up Rare Russian Oil as Top Buyer Boosts Imports
(Bloomberg) -- China is importing a wider variety of Russian crudes, including the lesser-known Arco grade, just as the nation doubles down on purchases.
Buyers snapped up three cargoes of crude from the Arctic including the highly sulfurous and dense Arco variety for arrival this month or in February, according to Vortexa Ltd., with data showing the first China-bound flows in November. Traders said the purchases may displace some Middle Eastern barrels, such as Iraq’s Basrah Heavy.
Another data and analytics firm, Kpler Ltd., said China’s latest round of purchases included Varandey and a lighter variety known as Novy Port.
Beijing’s warm relations with Moscow have seen it boost imports of Russian oil since the outbreak of the Ukraine war, replacing European and US buyers. The unusual purchases of Arctic oil come after China’s daily crude and condensate imports hit the second-highest on record last month, according to Kpler. Independent processors have sought to use up import quotas since late last year as the nation pivoted away from Covid Zero, aiding demand.
“The rerouting of Arctic grades is absolutely taking place,” said Viktor Katona, Vienna-based lead oil analyst at Kpler, highlighting the date when EU sanctions on Russian crude imports came into force. “Russia’s Arctic grades were among the Europe-oriented streams that since Dec. 5 have to find new homes elsewhere, and in all of those cases, it’s pretty much an India and China split.”
Sellers are indicating a discount of at least $10 a barrel to the ICE Brent price for March-arriving Arco on a delivered basis, more affordable than comparable grades, traders said. Brent futures were last near $79 a barrel.
Arco is pumped from the Prirazlomnoye field in the Arctic, and it is among three grades shipped out of Murmansk, along with Varandey and Novy Port. Six vessels that loaded cargoes from Murmansk last month were headed to India, another big buyer of Russian barrels amid the Ukraine war, Bloomberg tracking data show. Varandey has become popular with Indian users.
While Varandey is relatively well-known to Asian buyers, Arco and Novy Port are less familiar in the region. Most Arco used to go to the UK and the Netherlands, while Novy Port also had a focus on Dutch buyers, Katona said.
China this week issued around 112 million tons of crude-import quotas to refiners and traders in its latest allocation for this year. The sizable quota, coupled with a generous fuel-export concession, could support the nation’s crude purchases as well as refinery run rates in the coming months.
--With assistance from Julian Lee, Sherry Su and Alex Longley.
(Add detail on Arctic grades in eighth paragraph)
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