New sanctions on Moscow by the US and its allies sidelining the leading energy producers and some of its customers are causing Chinese refiners to abandon Russian oil. Even the state-owned oil giants such as Sinopec and PetroChina Co. have already announced the cancellation of several Russian shipments as the recent wave of sanctions on major companies like Rosneft PJSC and Lukoil PJSC.
Smaller independent refiners, sometimes known as teapots, are also evading Russian shipments due to their fear of incurring similar penalties as those which Shandong Yulong Petrochemical Co., recently blacklisted by the UK and European Union did. The sanctions have been a wakeup call in the refining industry of China which had been accustomed to the cheap Russian crude as an alternative source of expenses.
Among the worst hit grades is ESPO crude which is a favorite mix among the Chinese refiners and is currently witnessing a sharp demand and price drop. The current withdraws of the buyers affect up to 400,000 barrels per day, estimated by Rystad Energy AS, which is approximately 45 percent of the total imports of Russian oil by China.
Russia was already the biggest supply of oil to China and was enjoying the discounts that came because of the sanctions and thus its crude was very appealing. But the increased pressure imposed by the US and its allies is designed to further strangle the oil revenues of Moscow which is the major funder of its war in Ukraine.
The move would provide a window of opportunity to other oil exporters, such as the United States, particularly, the recent trade truce between Presidents Donald Trump and Xi Jinping. Nevertheless, the sanctions imposed by the new government have complicated the flow of oil in the world. Whereas other blacklisted Chinese refiners such as Yulong have turned to the Russian supplies more because of the limited choices, other refiners are taking a cautious approach as far as quota cuts and the risk of additional scrutiny are concerned.
Although the diplomatic developments have been positive in terms of trade talks, Russian oil is still a grey area and this is an indicator of unpredictability in international relations.
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