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Russia Oil Discounts Hit Records for China
5 Feb
Summary
- Russian oil discounts widened significantly for China this week.
- India's potential halt of Russian oil purchases boosts China's role.
- Chinese independent refiners are absorbing record volumes of Russian oil.
Discounts on Russian oil exports to China have widened to record highs this week, signaling a significant shift in the global crude market. Sellers are aggressively cutting prices to attract demand from China, the world's largest crude importer.
This widening discount comes as a trade agreement between the U.S. and India might lead to a halt in India's purchases of Russian oil. If India stops buying, China would likely become the exclusive major buyer for discounted Russian crude. This scenario is already causing Russian oil volumes in floating storage to rise.
Chinese independent refiners, particularly in Shandong province, are the primary beneficiaries, absorbing displaced Russian barrels. This allows them to boost profit margins, refinery runs, and strategic stockpiles. Discounts for key grades like ESPO Blend have reached nearly $9 a barrel to ICE Brent, while Urals grade discounts are around $12 per barrel.
Despite increased absorption by independent refiners, China may have reached its limit for Russian crude imports. China's seaborne Russian crude imports hit a record 1.7 million barrels per day in January as India's imports decreased. Without the re-engagement of state-owned majors, Russia faces an oversupplied market, though one refinery restart may offer some relief.
