MOSCOW/SINGAPORE (Reuters) -Russia’s Asia-bound ESPO Blend crude has fallen to a discount against Brent at delivery in Chinese ports for the first time in about a year, as new Western sanctions and a lack of import quotas for Chinese independent refineries curb demand, four trade sources told Reuters.
The drop in prices underscores the growing impact of sanctions on Moscow’s oil revenues, a key source of budget income.
The United States last week imposed sanctions on Russia’s largest oil producers, Lukoil and Rosneft, both major exporters of ESPO crude. In response, Chinese state oil majors have suspended purchases of seaborne Russian oil, Reuters has reported.
CARGOES OFFERED AT A DISCOUNT
Some independent Chinese refiners, known as “teapots” and traditionally heavy buyers of ESPO, have also paused purchases as they scramble to build compliant supply chains following the sanctions.
China regulates crude imports by independent refiners under a strict quota system.
Cargoes of ESPO Blend for loading in late November were offered at parity or discounts to ICE Brent, with some deals struck at discounts as deep as $0.50 per barrel, the sources said. Recent bids have weakened further, ranging from $0.50 to $1 per barrel below ICE Brent.
“Premiums for ESPO Blend were already weak prior to the sanctions announcement due to lack of import quotas, and now the price is going down to negative,” one of the sources said.
Cargoes scheduled to load in the first half of November from the Far Eastern port of Kozmino had been sold at premiums of around $1.70 per barrel to ICE Brent on a delivery basis to Chinese ports.
Trade for December-loading ESPO crude has been slow to start, as weak demand and a lingering surplus of November barrels have weighed on market activity, traders said.
(Reporting by Aizhu Chen and Siyi Liu in Singapore and Reuters in Moscow; Editing by David Holmes)
