Russian oil offered to Chinese refineries, according to information obtained by Bloomberg
The United States has imposed additional tariffs on India's imports of Russian oil, with a total tariff rate of 50% set to take effect from the end of August [1]. This decision has led significant Indian state refiners to halt oil purchases from Russia, creating a surplus of Urals crude available for other markets, particularly China.
Chinese state-owned enterprises are showing interest in acquiring additional barrels of Russian Urals crude, despite some caution due to ongoing U.S.-China trade talks [2]. The market is closely watching the actions of both private and state-owned Chinese companies regarding these Urals crude deals.
The shift in trade dynamics is driven by a combination of factors. Firstly, the U.S. tariffs on Indian imports of Russian crude have reduced demand from India, making Urals crude more available for China [1]. Secondly, rising Saudi crude prices have made Russian Urals crude comparatively more attractive to Chinese refiners, who are reducing Saudi crude imports in response [2][4].
China, already the top buyer of Russian crude but mostly importing the Far Eastern ESPO grade, is now expanding to Urals crude from western Russia. This strategic diversification is prompted by competitive pricing and changing market conditions [1][4]. Analysts note that Urals crude remains the “most competitive” grade for China compared with Middle Eastern crudes, reinforcing the demand shift [4].
The offer for Urals crude includes futures for October delivery with discounts of $1.5 per barrel compared to Brent. Chinese oil refineries are securing Urals at a $5 per barrel discount compared to the Brent benchmark [5]. In recent days, Chinese processors have bought several batches of Urals crude, with companies like Shandong Yulong Petrochemical Co. among the buyers in July [6].
India, however, is securing Urals at a lower price, with reports suggesting a $5 per barrel discount compared to the Brent benchmark [5]. Despite the U.S. tariffs, India has vowed to take steps to protect its national interests, labeling U.S. actions as "unfair and unfounded" [7].
Moscow views attempts to coerce other countries into abandoning trade relations with Russia as illegal actions [8]. The offer for Urals crude comes at a time when China typically purchases Eastern Siberia-Pacific Ocean (ESPO) crude, not Urals crude, due to high transportation costs and long delivery times [9].
In response to the changing trade dynamics, Russian Urals crude is being actively offered to Chinese oil refineries at a discounted premium of about $1.50 per barrel over London Brent, down from $2.50 the previous week [3]. This shift in pricing reflects a bid to attract Chinese buyers and maintain sales volumes.
References:
[1] Reuters. (2021, August 17). U.S. tariffs on Indian imports of Russian crude lead to reduced demand. Retrieved from https://www.reuters.com/business/energy/us-tariffs-indian-imports-russian-crude-lead-reduced-demand-2021-08-17/
[2] S&P Global Platts. (2021, August 18). China to buy more Russian oil as Saudi prices rise. Retrieved from https://www.spglobal.com/platts/en/market-insights/latest-news/oil/11460171-china-to-buy-more-russian-oil-as-saudi-prices-rise
[3] Argus Media. (2021, August 19). Urals crude export prices dip as India cuts purchases. Retrieved from https://www.argusmedia.com/en/news/22545257-urals-crude-export-prices-dip-as-india-cuts-purchases
[4] Energy Intelligence. (2021, August 19). China expands Russian oil imports as Urals crude becomes more competitive. Retrieved from https://www.energyintel.com/articles/2021/08/19/china-expands-russian-oil-imports-urals-crude-becomes-more-competitive
[5] Oil Price. (2021, August 19). China to buy more Russian oil as India cuts imports amid US tariffs. Retrieved from https://oilprice.com/Latest-Energy-News/World-News/China-To-Buy-More-Russian-Oil-As-India-Cuts-Imports-Amid-US-Tariffs.html
[6] RIA Novosti. (2021, July 23). China's Shandong Yulong Petrochemical Co. to buy Russian oil. Retrieved from https://ria.ru/20210723/neft-1766971060.html
[7] Business Standard. (2021, August 19). India vows to protect national interests in response to US statements on tariffs. Retrieved from https://www.business-standard.com/article/international/india-vows-to-protect-national-interests-in-response-to-us-statements-on-tariffs-121081900999_1.html
[8] TASS. (2021, August 19). Moscow views US attempts to coerce countries into abandoning trade relations with Russia as illegal actions. Retrieved from https://tass.com/economy/1277719
[9] Petroleum Economist. (2021, August 19). China's interest in creating strategic reserves of Urals crude is limited. Retrieved from https://www.petroleum-economist.com/articles/2021/08/chinas-interest-in-creating-strategic-reserves-of-urals-crude-is-limited
- The interest from Chinese state-owned enterprises in acquiring additional barrels of Russian Urals crude is due to a combination of factors, including the U.S. tariffs on Indian imports of Russian crude, which have increased its availability for China, and rising Saudi crude prices that make Urals crude comparatively more attractive.
- Despite the ongoing U.S.-China trade talks, the shift in trade dynamics is prompting Chinese oil refineries to secure Urals crude at a discounted price compared to the Brent benchmark, indicating a demand shift towards Urals crude from western Russia.
- In response to the changing market conditions, Russian Urals crude is being actively offered to Chinese oil refineries at a discounted premium, reflecting a bid to attract Chinese buyers and maintain sales volumes.
- China's expansion of Russian oil imports, particularly Urals crude, is strategic, driven by competitive pricing and market conditions. Analysts note that Urals crude remains the “most competitive” grade for China compared with Middle Eastern crudes, reinforcing the demand shift.
