Impact on Chinese Buyers after Russian Crude Sanction
The EU is scheduled to ban Russian crude oil and petroleum product imports after December 5, 2022, and February 5, 2023, respectively. Russia's crude oil production is expected to fall by about 20% in Q1 2023 from October 2022 to 7.5 million b/d.
The volume shipped to China accounts for ¼ of Russian seaborne export, of which major buyers are CNPC and Shandong independent refineries. Chinese buyers stay fence-sitting at the current stage, with no plans to slash the imports.
Russian Crudes Shifted Faster to Asia
Russian crude oil shipment in January-October 2022: The share of crude exported to Europe countries fell from 64% in January to around 42% in October; while shipments to Asian destinations accounted for 56% in October, increasing from 34% in January.
The share of Russian crude shipment to Europe further decreased to 33% in November to around 6.32 million tonnes, according to Kpler.
Chinese and Indian destinations accounted for 45%, respectively, of Russia's seaborne crude export to Asian countries.
Higher Market Share VS Narrowing Price Spreads
Russian crude oil volume imported by Chinese buyers has shown an increasing proportion since the Russian-Ukraine War outbreak at the end of February 2022. China's Russian oil intake reached a record high of 8.42 million tonnes in May. Although the volume shrunk in June-July after curbing demand caused by severe Covid lockdowns, the proportion of Russian crudes remained at a high level of 19-21%. Imports remained at around a level of 7.5 million tonnes in September-October.
Crude shipments from Russia have seen discounts in the global market after many countries announced sanctions against the country.
Active Buyers: CNPC and Shandong Refineries
The majority of China's Russian crude imports are flowing to refineries owned by CNPC and Shandong independents.
Russian crude imports via pipeline accounted for 39% in Jan-Oct (about 28 million tonnes), and seaborne imports by Shandong province accounted for 38% (around 27.2 million tonnes).
CNPC's imported crude oil accounted for lower than 50% of its refinery throughputs, and around 50% of that was Russian imports by pipeline and seaborne shipments. The pipeline imports are able to avoid the current sanction package.
Russian ESPO crude takes the most share of feedstock in some refineries in Shandong. Shandong's import volume of ESPO crude was about 19.5 million tonnes in Jan-Oct, which almost reached the full-year volume of last year. Shandong buyers' purchases were motivated by deep price discounts in March-August.
Price advantages have brought up Shandong refineries' purchases since May, sending the share of seaborne Russian crude imports rose to 40.2% in August, up by 22 percentage points compared with the Jan-April average. The share remained at a high level of 34-39% in September-October, despite it edging down compared with August.
It should be noted that only a small portion of spot discounts was obtained by Shandong independents, as traders kept the majority of the margins under rising sanction risks. The discount gain supports the earnings of Shandong independents but is not as substantial as refiners owned by CNPC.
Place Orders as Planned but Keep Fence-sitting
The market expects Russian crude oil exports to fall by around 30% after the EU sanction package to ban purchase and shipment loading becomes effective on 5 December.
Russian crude procurement activity by Shandong independent refineries was seen as normal as the buyers stay wait-and-see. Most of them believe that the actual ESPO supply from market traders will not decline significantly.
Written by the GL Consulting team (Mysteel's consultancy arm on energy transition): glconsulting@mysteel.com
Edited by Navy Liu: liuchuanjun@mysteel.com
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