China Holds Ample Amount of Crude Suppliers as Many Avoid Russian Barrels

Chinese oil buyers are  spoilt for choice right now even as lockdowns hurt demand as they can opt for everything from discounted Russian crude and sanctioned Iranian oil to regularly-taken Middle Eastern barrels.

Oil demand saw a cutback from latest lockdowns in China and the country has a ample amount of suppliers that they can tap once demand rebounds. While Russian cargoes – from ESPO from the Far East and Urals from western fields are avoided by many due to Russian war in Ukraine but the tankers are cleared for Mainland China.  At the same time, millions of Iranian and Venezuelan barrels are still floating in Chinese waters.

China has emerged to one of the main beneficiaries of the conflict in Europe. Beijing discretely snapped Russian barrels that are being shunned by the US and UK – while European Union is working on its own ban.

A major Chinese refiner has taken less term supply from Saudi Aramco for cargoes to be shipped in June, according to traders as reported by Bloomberg. Some North Asian refiners however asked for additional supply for Saudis which is in contrast with China given with Middle Eastern barrels relatively cheaper than comparable long-haul cargoes from the U.S. and North Sea.

In May, Chinese state refiners are planning to process 4% less than in April, according to industry consultant OilChem as reported by Bloomberg.

“The Covid situation is feeding into an increased level of uncertainty surrounding oil demand and the outlook for Chinese refinery runs,” said Jane Xie, a senior oil analyst at data and analytics firm Kpler.

“The prospect of an EU ban on Russian oil will inevitably turn some attention onto China, whether they can pick up more barrels once their demand woes are over.”

About 17 million to 20 million barrels of crude, mostly Iranian and Venezuelan, are floating off China, according to shipping analytics firms Vortexa and Kpler.

While that’s down from 20 million to 30 million barrels last month, these cargoes have faced facing difficulty finding buyers since February on sluggish demand from private processors, Li said.

Traders said as reported by Bloomberg, Venezuelan crude was being offered at record discounts with flexible yuan-payment terms, while cargoes of Russia’s Urals were also being shown at steeper discounts of $8 a barrel or more to Brent on a delivered basis to China.

In the latest reported deal late last month, a Chinese processor in Shandong bought Urals at a discount of $6.30 to $6.50, they said.

“It could still pay off for Chinese refiners to wait for further price drops, given that the rise in Russian oil intake so far has just been 3%, based on the current pace-to-date in May,” Xie said. Still, that doesn’t seem to have occurred definitely yet, she said.