Refiners in China and India are looking for alternative crude supplies as new US sanctions on Russian producers and tankers are seen as most effective in curbing shipments to Moscow’s biggest customer, many traders said on Monday.
The US Treasury Department on Friday imposed sanctions on Russian oil producers Gazprom Neft and Surgutneftegaz, as well as 183 ships delivering Russian oil, as it targets revenue Moscow uses to fund its war with Ukraine.
Many of those tankers are used to ship oil to India and China as Western sanctions and price caps imposed by the Group of Seven (G7) countries in 2022 shift Russia’s oil trade from Europe to Asia. Additionally, several tankers have shipped oil from Iran, which is also subject to sanctions.
On Monday, China reiterated its rejection of unilateral US sanctions.
Although oil refining companies in China and India have adapted to previous sanctions, the severity of these new measures has pushed them back to unrestricted oil sellers, thereby limiting supply and increasing spot prices for crude oil produced in the Middle East to Africa and Brazil .
Global Brent crude oil prices also increased. On Monday, oil prices rose above $81 a barrel to their highest level since August. [O/R]
In an early illustration of the impact on shipping activity, five sanctioned tankers have docked in Shandong province since Friday, according to shipping data on LSEG Workspace. Others are on their way.
Traders said the ships were not allowed to discharge oil after Shandong Port Group banned tankers under US sanctions from stopping at its ports.
Over the weekend, China’s new refiner, Yulong Petrochemical, bought 4 million barrels of Upper Zakum crude in Abu Dhabi in February and March from Totsa, the trading arm of French energy major TotalEnergies, traders said.
The cargo was destined for a 400,000 barrels per day (bpd) refining complex in Yantai, eastern Shandong province, which began trials in September.
Yulong, which previously bought Russian ESPO Blend crude, has bought Angolan and Brazilian crude in recent weeks, traders said, and is in talks to buy more oil from West Africa as well as Canada.
The refinery bought 2 million barrels of Angolan Girassol and Nemba crude and 2 million barrels of Brazilian Buzios and Tupi crude, they said.
Many of the sources contacted by Reuters declined to be named because they were not authorized to speak to the media. Yulong and Totsa usually do not comment on commercial deals.
Indian refiners, which bought Middle Eastern crude last week before sanctions were announced, are seeking more cargoes, traders said.
India’s Bharat Petroleum Corp Ltd bought 2 million barrels of Omani crude loaded in February from Totsa through a tender last week, two people familiar with the matter said.
India will allow Russian oil cargoes ordered before January 10 to be unloaded at ports, the sources told reporters, adding that supplies would continue to flow as long as sanctions relief runs through March.
The sources said Russia may deepen discounts on crude oil exports to India to comply with the $60 per barrel price cap, allowing them to continue.
Strong demand helped Totsa reduce an oversupply of Middle Eastern crude after it accumulated cargoes via the S&P Global Platts trading platform over the past four months, traders said.
The spot premium for the Middle East benchmark surged more than 70% to around $3 a barrel on Monday, traders said, hitting its highest level since October 2023. [CRU/M]
Price premiums for sweet grades also rose, with Brazilian crude for March delivery trading at a premium of more than $3 a barrel to Brent prices last week, up about $2 from levels seen in early December, one trader said.
A trade executive involved in Russia’s oil business said the biggest disruption would be to shipping, and complications could arise if a ship is owned or managed by a company involved in operating tankers under sanctions.
Over time, the market will likely see more intermediaries marketing oil from Gazprom Neft and Surgutneftegaz, and there will be more payments in Chinese yuan through China’s Cross-Border Interbank Payment System (CIPS), the executive said.
Friday’s sanctions documents also cover two Chinese oil logistics companies – Shandong United Energy Pipeline Transportation Co Ltd and Guangrao Lianhe Energy Pipeline Conveyor Co – both based in eastern China’s Shandong province, which is a major refining hub and destination for Chinese oil under sanctions .
Since these companies mostly transport oil from storage tanks to domestic refiners for payment in Chinese yuan, the impact of the sanctions will be small, the trade executive added.
Source: Reuters (Reporting by Florence Tan, Siyi Liu and Chen Aizhu in Singapore, and Nidhi Verma in New Delhi; Additional reporting by Trixie Yap in Singapore and Ethan Wang in Beijing; Editing by Kate Mayberry and Barbara Lewis)
