Smoke billows from chimneys at an oil refinery in Nanjing, east China’s Jiangsu province, December 28, 2006. REUTERS/Sean Yong
- Sinopec, CNOOC, PetroChina, Sinochem refrain from new purchases
- Concerns about sanctions keep state-owned companies in check
- Some independent refiners continue ESPO crude oil imports
SINGAPORE, April 6 – China’s state-owned refiners are honoring existing Russian oil deals but avoiding new ones despite heavy rebates, heeding Beijing’s call for caution as Western sanctions mount against Russia over its invasion of Ukraine, six people told Reuters.
State-run Sinopec (600028.SS), Asia’s largest refiner, CNOOC, PetroChina (601857.SS) and Sinochem have stayed on the sidelines in trading fresh Russian shipments for May shipments, people said, but were all on the matter Informed spoke on condition of anonymity given the sensitivity of the subject.
Chinese state-owned companies do not want to be seen as openly supporting Moscow by buying additional oil, two of the people said, after Washington banned Russian oil last month and the European Union imposed sanctions on top Russian exporters Rosneft (ROSN.MM ) and Gazprom Neft (SIBN.MM). Continue reading
“SOEs are cautious because their actions could be seen as representing the Chinese government, and none of them want to be singled out as buyers of Russian oil,” one of the people said.
Sinopec and Petrochina declined to comment. CNOOC and Sinochem did not immediately respond to a request for comment.
China and Russia have forged increasingly close ties in recent years, and as recently as February they announced a borderless partnership, and China has refused to condemn Russia’s actions in Ukraine or call it an invasion. Continue reading
China has repeatedly criticized Western sanctions against Russia, although a senior diplomat said on Saturday that Beijing is not intentionally circumventing sanctions against Russia.
China, the world’s largest oil importer, is the biggest buyer of Russian crude at 1.6 million barrels a day, half of which is delivered via pipelines under government contracts.
Sources expect China’s state-owned companies to honor their long-term and existing contracts for Russian oil but refrain from new spot deals.
A drop in China’s imports of Russian oil could prompt its giant state-owned refiners to turn to alternative sources, adding to global supply concerns that pushed benchmark Brent oil prices to a 14-year high of nearly $140 a barrel in early March driven after Russia invaded Ukraine on February 27 24. read more
Brent futures have since slipped below $110 after the United States and allies announced plans to release holdings from strategic reserves. Continue reading
“RISK CONTROL AND COMPLIANCE FIRST”
Before the Ukraine crisis, Russia supplied 15% of China’s oil imports – half of it via the East Siberian and Atasu-Alashankou pipelines and the rest by tankers from its Black Sea, Baltic and Far East ports.
Unipec, Sinopec’s trading arm and a top Russian oil buyer, has warned its global teams about the risks of trading Russian oil at regular internal meetings over the past few weeks.
“The message and tone are clear — risk control and compliance before profit,” said one of the sources briefed on the meetings.
“Although Russian oil is heavily discounted, there are many problems such as securing shipping insurance and payment difficulties.”
Another source with a refinery that regularly processes Russian crude said its plant had been instructed by Unipec to find replacements to maintain normal operations.
“Beyond shipments that arrived in March and are due to arrive in April, there will be no more Russian oil,” this source said.
Unipec loaded 500,000 tons of Urals from Russia’s Baltic ports in March, the highest volume in months, delivered by Surgutneftegaz locally and under a Rosneft export tender Unipec won for shipments between September 2021 and March 2022, according to merchant and shipping data.
The latest Ural deals will be two April shipments totaling 200,000 tons from Russian producer Surgutneftegaz (SNGS.MM), two traders with knowledge of the deals said.
In contrast, India has booked at least 14 million barrels, or about 2 million tonnes, of Russian oil since February 24, according to Reuters calculations, up from almost 16 million barrels for all of 2021
Other state buyers — PetroChina, CNOOC and Sinochem — shunned Russia’s ESPO blend for shipment in May, sources said.
Sinopec is facing payment problems even for previously agreed deals as risk-averse state banks seek to scale back funding for Russian oil deals, the second source said.
TEAPOTS KEEP OFFERS ‘UNDER WRAPS’
Sanctions concerns have kept some independent refiners known as teapots, once a dynamic group of customers who consumed about a third of China’s Russian oil imports, flying under the radar.
“The ESPO trade was really slow and secretive. Some deals are closed, but details are being kept under wraps. Nobody wants to be seen buying Russian oil in public,” said a regular ESPO trader.
To keep oil flowing, these nimble refiners employ alternative payment mechanisms such as cash transfers, payment upon delivery of cargo, and the use of Chinese currency.
Russian suppliers – Rosneft, Surgutneftegaz and Gazprom Neft, as well as independent producers represented by Swiss trader Paramount Energy – are expected to ship a record 3.3 million tonnes of ESPO from the port of Kozmino in May. Continue reading
Reporting by Reuters, Chen Aizhu and Florence Tan in Singapore; Editing by Himani Sarkar