Even though the actual prices refiners pay may be higher than the price cap set this week by Western nations, China is purchasing Russian ESPO crude oil at the steepest discounts in months due to weak demand and low refining margins.
The Group of Seven (G7) nations, the European Union, and Australia imposed a $60 per barrel cap that went into effect on Monday to curtail Moscow’s ability to fund its conflict in Ukraine, though Russia has promised to challenge it.
China To Depend on Russian Oil
Independent refiners in China are the main consumers of ESPO, a grade that is shipped out of the Russian Far Eastern port of Kozmino. These refiners obtain the shipments almost exclusively on a delivered basis from traders who handle the shipping and insurance, protecting them from any potential secondary sanctions that may arise from the price cap.
Due to its closeness and the oil’s high yield of middle distillates, Chinese refiners prefer crude oil. According to four traders with knowledge of the transaction, at least one December-arrival ESPO cargo was sold last week to an independent refiner at a $6 per barrel discount compared to the February ICE Brent price on a delivery-ex-ship (DES) basis.
Comparatively, three weeks ago, the premium was at $1.80 per barrel. The $6 savings suggests a price of $68 per barrel, including freight and insurance, at the current Brent levels.
Oil Price Cap
The price cap doesn’t really concern them (independent plants). According to a trading executive of one independent refiner, all they do is analyze the statistics to determine whether the delivered prices generate a decent profit or not.
Governments all over the world have pledged to significantly reduce carbon emissions during the ensuing decades, though. To quicken the transition to net-zero economies, nations like Canada and Germany have increased their investments in renewable energy.
Since the 2000s, the domestic production of oil and gas in the US has greatly expanded, and the country’s switch to clean energy has progressed more quickly.
All nations are rushing to secure their energy sources as a result of the Russian invasion of Ukraine in February. The West has also further destabilized the oil markets by imposing an embargo and a price ceiling on the second-largest petroleum exporter in the world.