Exclusive: China quietly increases purchases of cheap Russian oil

SINGAPORE, May 20 (Reuters) – China is quietly increasing its oil purchases from Russia at bargain prices, according to shipments data and oil traders who spoke to Reuters, filling the void left by Western buyers who withdraw from business with Russia after its invasion. from Ukraine in February.

The move by the world’s biggest oil importer comes a month after it initially cut Russian supplies for fear of appearing to openly support Moscow and potentially exposing its state oil giants to sanctions. Read more

Chinese imports of Russian oil by sea will hit 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, according to an estimate by Vortexa Analytics.

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Unipec, the trading arm of top Asian refiner Sinopec Corp (600028.SS), is leading the buying, along with Zhenhua Oil, a unit of Chinese defense conglomerate Norinco, according to shipping data, a shipbroker report seen by Reuters and five traders. . Livna Shipping Ltd, a Hong Kong-registered company, has also recently become a top shipper of Russian oil to China, traders said.

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

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

The United States, Britain, and some other major oil buyers banned imports of Russian oil soon after the invasion. The European Union is finalizing a new round of sanctions, including a ban on Russian oil purchases. Many European refiners have already stopped sourcing from Russia for fear of breaching sanctions or being the subject of negative publicity.

Vitol and Trafigura, two of the world’s biggest commodity traders, have phased out purchases from Rosneft, Russia’s biggest oil producer, ahead of an EU rule that came into force on May 15 banning purchases unless they are “strictly necessary” to guarantee the EU’s energy needs. Read more

“The situation began to take a drastic turn after the exit of Vitol and Trafigura which created a vacuum, which could only be filled by companies which can provide value and which are trusted by their Russian counterparts”, said said a Chinese trader, who asked not to be named. , told Reuters.

The low price of Russian oil – spot differentials are around $29 a barrel lower than before the invasion, traders say – is a boon for Chinese refiners as they face shrinking margins in a slowing economy. The price is well below competing barrels from the Middle East, Africa, Europe and the United States. Read more

China separately receives some 800,000 bpd of Russian oil through pipelines under government agreements. That would bring May imports to nearly 2 million bpd, or 15% of China’s overall demand. For Russia, oil sales help cushion the blow to its economy from the sanctions.

STATE BUYERS

Chinese state-owned enterprises, led by Sinopec and Zhenhua, are expected to buy two-thirds of Russia’s flagship Eastern Siberia-Pacific Ocean Pipeline (ESPO) blend for export to the Far East in May, up from a third before April. invasion of Ukraine, traders who are watching the flows closely told Reuters. Russia exported around 24 million barrels in May, 6% more than in April.

Sinopec alone is likely to buy at least 10 ESPO shipments in May, doubling its volume before the invasion, with some of the transactions reaching a record discount of $20 a barrel below benchmark Dubai crude on FOB Kozmino basis. , said three of the traders.

Sinopec, Zhenhua and Livna transport more oil from Russia’s Baltic Sea ports in northwestern Europe and its Far East export hub, Kozmino.

Zhenhua, China’s smallest state-owned oil trader, chartered ships to transport Russian oil, according to shipping data and traders familiar with the matter. North Petroleum International Co, a unit of Zhenhua, loaded two ESPO shipments in early May, and two more Urals shipments from the Baltic Sea port Ust-Luga in late April and mid-May, according to data from Refinitiv and Vortexa, a shipbroker and traders report.

Norinco, one of the world’s largest defense contractors, got into the oil business more than two decades ago, winning a concession to produce oil in Iraq in the 1990s. Its Zhenhua commercial vehicle has recently expanded to gas terminal investment and trading. Read more

Zhenhua bought some of its Russian oil supply through Swiss-based Paramount Energy, a trader specializing in marketing oil from Russian and Kazakh independent producers to mostly private end users, two traders with knowledge of the matter said.

A regular ESPO distributor to China’s independent refiners since 2016, Paramount Energy has expanded its business in China by increasing sales to Zhenhua after opening an office in Beijing in 2020, sales officials said.

In response to questions from Reuters, Paramount Energy did not address transactions made after Russia invaded Ukraine. He said he “had customers in China for shipments of ESPO crude delivered under long-term contracts established long before February 24, the date of the invasion. “This crude is supplied exclusively by independent oil producers and non-state companies, as has long been our policy.”

Livna, which was not previously a major player in bringing Russian oil to Asia, has since late April loaded more than 7 million barrels of Russian Ural and ESPO crude destined for the China, according to vessel tracking data from Vortexa and Refinitiv.

Previously a regular shipper of export-grade Russian Urals to Europe, Livna began shipping Russian oil to Shandong province, China’s independent refiner hub, in early 2020, according to shipping data.

So far in May, Livna has loaded eight shipments, or nearly 6 million barrels of ESPO oil, bound for China, compared to one or two shipments each month earlier this year, according to shipping data. Livna also loaded at least two Ural shipments from Baltic ports in May for delivery in China, traders told Reuters.

The withdrawal of Western traders has also attracted new player Shandong Port International Trade Group, a trader backed by the provincial government, 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.

Edward N. Arrington