SINGAPORE, May 20 (Reuters) – China is quietly ramping up oil from Russia at bargain prices, according to shipping data and oil traders who spoke to Reuters, filling the vacuum left by Western buyers pulling out of business with Russia after the invasion of Ukraine in February.
The move by the world’s largest oil importer comes a month after it initially scaled back Russian supplies, fearing to appear openly backing Moscow and potentially exposing its state oil giants to sanctions. read more
According to an estimate by Vortexa Analytics, China’s overseas Russian oil imports will soar to a near-record 1.1 million barrels per day (bpd) in May, up from 750,000 bpd in the first quarter and 800,000 bpd in 2021.
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Unipec, the trading arm of Asia’s top refiner Sinopec Corp (600028.SS), is leading the purchases, along with Zhenhua Oil, a part of China’s defense conglomerate Norinco, according to shipping data, a shipbrokers report seen by Reuters and five traders. Livna Shipping Ltd, a Hong Kong-registered company, has also recently emerged as a major shipper of Russian oil to China, the traders said.
Sinopec declined to comment. Zhenhua and Livna did not respond to requests for comment.
The firms are filling the gap left by Western buyers after Russia’s invasion of Ukraine, which Russia calls a “special military operation.”
The United States, Britain and several other major oil buyers banned Russian oil imports shortly after the invasion. The European Union is finalizing a new round of sanctions, including a ban on Russian oil purchases. Many European refineries have already stopped buying from Russia for fear of sanctions or negative publicity.
Vitol and Trafigura, two of the world’s largest commodities traders, have phased out purchases from Rosneft, Russia’s largest oil producer, pending an EU rule that came into effect on May 15, excluding purchases unless “strictly necessary to meet the EU’s energy needs. read more
“The situation began to take a drastic turn after the departures of Vitol and Trafigura, creating a vacuum that could only be filled by companies that can offer value and have the trust of their Russian counterparts,” said a Chinese trader, who asked for not to be mentioned. , Reuters told Reuters.
The low price of Russian oil — spot differentials say traders are about $29 a barrel lower than before the invasion — is a boon for China’s refineries as they face shrinking margins in a slowing economy. The price is well below competitive barrels from the Middle East, Africa, Europe and the United States. read more
China separately receives about 800,000 bpd of Russian oil through pipelines under government agreements. That would bring imports to nearly 2 million barrels per day in May, 15% of total demand in China. For Russia, oil sales are helping to cushion the blow to its economy from sanctions.
STATE BUYERS
Chinese state-owned companies, led by Sinopec and Zhenhua, will buy two-thirds of Russia’s flagship export-grade ESPO blend (Eastern Siberia and the Pacific) in May, up from a third before the invasion of Ukraine. who are closely monitoring the flows, Reuters told Reuters. Russia exported about 24 million barrels in May, 6% more than in April.
Sinopec alone is likely to buy at least 10 ESPO shipments in May, doubling pre-invasion volume, with some trades hitting a record $20 a barrel below benchmark Dubai oil on a FOB Kozmino basis, three of the traders said. .
Sinopec, Zhenhua and Livna are carrying more oil from both Russia’s Baltic ports in northwestern Europe and the Far Eastern export hub Kozmino.
Zhenhua, the smallest state-owned Chinese oil trader, has chartered ships to carry Russian oil, according to shipping data and knowledgeable traders. North Petroleum International Co, a unit of Zhenhua, loaded two ESPO shipments in early May and two more shipments of Urals from the Baltic Sea port of Ust-Luga in late April and mid-May, according to data from Refinitiv and Vortexa, a shipbroker’s report. and traders.
Norinco, one of the world’s largest defense contractors, branched out into oil more than two decades ago and won a concession to produce oil in Iraq in the 1990s. Its trading vehicle Zhenhua has recently expanded into gas terminal investment and trading. read more
Zhenhua has purchased some of its supply of Russian oil through Swiss-based Paramount Energy, a trader that specializes in selling oil from independent Russian and Kazakhstani producers to mostly private end users, two knowledgeable traders said.
Paramount Energy, a regular seller of ESPO to China’s independent refiners since 2016, expanded its Chinese operations by boosting sales to Zhenhua after setting up an office in Beijing in 2020, the trade executives said.
In response to Reuters’ questions, Paramount Energy did not comment on transactions made after the Russian invasion of Ukraine. It said it has “customers in China for ESPO raw cargoes delivered under long-term contracts signed well before February 24,” the date of the invasion. “This crude oil is supplied exclusively by independent oil producers and non-state companies, as has long been our policy.”
Livna, which had not previously been a major player in transporting Russian oil to Asia, has loaded more than 7 million barrels of Russian Ural and ESPO crude to China since late April, according to ship tracking data from Vortexa and Refinitiv.
Livna, formerly a regular shipper of Russia’s European-focused export-grade Urals within Europe, began shipping Russian oil to Shandong Province, the center of independent refineries in China, in early 2020, according to shipment data.
So far, in May, Livna has loaded eight loads, or nearly 6 million barrels of ESPO oil, destined for China, compared to one or two loads a month earlier this year, shipping data shows. Livna also loaded at least two Ural shipments from Baltic ports for delivery to China in May, traders told Reuters.
The withdrawal of Western traders has also attracted new player Shandong Port International Trade Group, a provincial government-backed trader, to the company, traders told Reuters.
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Reporting by Chen Aizhu and Florence Tan in Singapore and Reuters reporters Editing by Bill Rigby
Our Standards: The Thomson Reuters Trust Principles.
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