EXCLUSIVE: China’s state refiners avoid new Russian oil transactions, teapots are flying under the radar

  • Sinopec, CNOOC, PetroChina and Sinochem refrain from new purchases
  • Concern about sanctions keeps state firms in trouble
  • Some independent refineries continue to import Espoo crude

SINGAPORE (Reuters) – China’s state refiners are respecting existing Russian oil contracts but avoiding new ones despite deep cuts, six people told Reuters, responding to Beijing’s call for caution as Western sanctions against Russia mount over its invasion of Ukraine.

State-run Sinopec (600028.SS)Asia’s largest refiner, CNOOC, PetroChina (601857.SS) Sinochem has remained on the sidelines in the new Russian cargo trade for the May shipments, said the people, who all had knowledge of the matter but spoke on condition of anonymity due to the sensitivity of the matter.

Two sources said Chinese state-owned companies do not want to be seen as openly supporting Moscow by buying additional oil, after Washington banned Russian oil last month and the European Union imposed sanctions on Russia’s biggest oil exporter, Rosneft. (ROSN.MM) and Gazprom Neft (SIBN.MM). Read more

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“The state-owned companies are cautious as their actions can be seen as representing the Chinese government and none of them want to be a buyer of Russian oil,” one person said.

Sinopec and Petrochina declined to comment. CNOOC and Sinochem did not immediately respond to a request for comment.

China and Russia have developed increasingly close ties in recent years, and as recently as February announced a “borderless” partnership, China refused to condemn Russia’s action in Ukraine or describe it as an invasion. Read more

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China has repeatedly criticized Western sanctions against Russia, although a senior diplomat said on Saturday that Beijing is not deliberately evading sanctions against Russia.

China, the world’s largest oil importer, is the largest buyer of Russian crude at 1.6 million barrels per day, half of which is supplied via pipelines under contracts between the government.

Sources expect Chinese state companies to stick to existing long-term contracts for Russian oil but avoid new spot deals.

Declining Chinese imports of Russian oil could prompt the giant country’s refiners to turn to alternative sources, adding to global supply concerns that pushed benchmark Brent crude prices to a 14-year high near $140 a barrel in early March after Russia invaded Ukraine in February. 24. Read more

Since then, Brent crude futures have fallen below $110, after the United States and its allies announced plans to release stocks from strategic reserves. Read more

“Risk Control and Compliance First”

Before the Ukraine crisis, Russia supplied 15% of China’s oil imports – half of that via the East Siberian and Atasu-Alashanko pipelines and the rest via tankers from its ports on the Black Sea, the Baltic Sea and the Far East.

Unipec, the trading arm of Sinopec and a prominent Russian oil buyer, has warned its global teams at regular internal meetings in recent weeks about the risks of dealing with Russian oil.

“The message and tone are clear – risk control and compliance come before profits,” said one of the sources who was briefed on the meetings.

Although Russian oil is significantly discounted, there are many issues such as shipping insurance and payment hurdles.

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Another source, who has a refinery that regularly processes Russian crude, said Unipec had told his plant to find an alternative to maintain normal operation.

“Other than shipments that arrived in March and are due to arrive in April, there will be no more Russian oil in the future,” this source said.

Unipec loaded 500,000 tons of Urals from Russia’s Baltic ports in March, the highest volume in months, immediately submitted by Surgutneftegaz and under a Rosneft export tender won by Unipec for shipments between September 2021 and March 2022, according to traders and shipping data.

Its latest deal in the Urals will be two April loading deliveries totaling 200,000 tons of Russian producer Surgutneftegaz. (SNGS.MM)Two traders familiar with the deals said.

In contrast, India has so far booked at least 14 million barrels, or about two million tons, of Russian oil since February 24, compared to nearly 16 million barrels in the whole of 2021, according to Reuters calculations. Read more

Sources said other government buyers – PetroChina, Cinoc and Sinochem – avoided Russia’s ESPO mix for loading in May.

The second source said Sinopec is facing repayment problems even for deals agreed upon earlier as risk-averse state banks seek to reduce financing of deals related to Russian oil.

TEAPOTS keep deals ‘under the covers’

Sanctions fears have prompted some independent refiners known as teapots, which were once a dynamic group of customers that consumed about a third of China’s imports of Russian oil, under the radar.

“The Espoo trade has been really slow and secretive. Some deals are going on but the details are still kept secret. Nobody wants to see Russian oil in public,” said a regular Espoo trader.

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To keep the oil flowing, these smart refineries deploy alternative payment mechanisms such as cash transfer, post-delivery payments and the use of Chinese currency.

Russian suppliers – Rosneft, Surgutneftegaz and Gazprom Neft, and independent producers represented by Swiss trader Paramount Energy – are expected to ship 3.3 million tons of ESPO from the port of Cosmino in May. Read more

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(Reuters Report), Chen Aigu and Florence Tan in Singapore; Edited by Himani Sarkar

Our criteria: Thomson Reuters Trust Principles.

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