Chinese buyers are making a comeback to Russia’s ESPO crude market, attracted by the cooling prices as shippers and middlemen find ways to mitigate the effects of U.S. sanctions. April-loading cargoes, shipped from Russia’s Pacific port of Kozmino to China, are being offered at a premium of $2.50 per barrel over the benchmark Brent crude, a slight decrease from the $3 premium seen for March shipments, according to traders involved in handling the grade.
This price drop comes as a welcome relief to China’s smaller independent refiners, known as “teapots,” who have been struggling with tight margins. These refiners are particularly eager to secure an alternative supply to Iranian crude, which has been significantly impacted by tightening U.S. restrictions. The previous administration under President Trump had promised “maximum pressure” on Tehran, making it difficult for Chinese refiners to access Iranian oil.
Broad U.S. sanctions imposed by the Biden administration in early January disrupted the flow of ESPO crude to China, with 161 tankers — many of them involved in this trade — blacklisted. Since the sanctions, non-sanctioned vessels have stepped in to fill the supply gap, while smaller, private Chinese ports have been used to ensure that cargoes from sanctioned vessels continue to arrive undisturbed.
However, the absence of some of China’s largest state-backed importers from the ESPO market, concerned about potential secondary sanctions, has led to unsold cargoes for March, despite the momentum picking up for April shipments. Traders, who spoke on the condition of anonymity due to media restrictions, highlighted that the market was still adjusting.
The U.S. sanctions also caused shipping fees for ESPO to skyrocket, and a two-tier pricing system was introduced to buyers. One option allowed for lower-priced shipments, with the risk of the cargo being transported on a blacklisted tanker. Alternatively, buyers could pay a substantial premium of $5 or more for oil shipped via non-sanctioned vessels.
While other Russian grades, such as Sokol and Sakhalin blend, remain affected by U.S. restrictions, the workarounds for ESPO crude are helping to stabilize the trade and bring pricing back to more typical levels, boosting Russia’s overall crude exports.
Russia’s shipments to China are estimated to reach 1.15 million barrels per day in March, marking a 16% increase from February and the highest daily volume since December, according to data from Kpler. ESPO crude remains the dominant grade in these shipments, accounting for the largest share of the total.
In summary, despite the challenges posed by U.S. sanctions, innovative solutions and lower prices are helping Russia regain its foothold in China’s crude market.
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