China Seeks Russian Oil Amid Middle Eastern Export Disruptions

Chinese refiners have increased their purchases of Russian oil despite shrinking discounts due to disruptions in Middle Eastern exports. The escalation of the Iran war has led to a decrease in oil shipments through the Strait of Hormuz, causing Chinese refineries to seek alternative suppliers.

Two major Chinese refiners bought most of the Russian ESPO Blend crude loading from the Pacific port of Kozmino in September at a discount of $1 to $3 per barrel to ICE Brent. This is compared to a discount of around $4 per barrel for August-loading ESPO, reflecting robust demand from India.

Chinese independent refiners are also negotiating with Iranian oil sellers to purchase cheaper crude. The Pars crude, a heavy grade, was sold at a discount of about $8 a barrel to ICE Brent for delivery to Shandong. Offers for Iran Light have slipped to discounts of about $3 to $4 a barrel compared to about $3 last week.

Independent refiners in eastern China's Shandong refining hub had previously bought around 20 million barrels of Middle Eastern crude for loading in July to August, with some looking to resell the oil this week for profits. However, their refining margins have worsened with Brent surging to nearly $100 a barrel.