Going to California

China has been buying so much sanctioned Iranian and Venezuelan crude lately that its demand for Russia’s East Siberia-Pacific Ocean (Espo) oil has plummeted. This has caused some unusual dislocations in the spot market, including shipments of Espo -- Asia-Pacific’s largest export stream -- making the long-haul journey to the US for the first time in close to two years. Chevron snapped up 890,000 bbl of March-loading Espo sailing for its El Segundo refinery in California, while another buyer took 590,000 bbl that loaded end-March and is pointed at San Francisco, according to data intelligence company Kpler. Their April arrivals would mark the first time Espo has landed in the US for 21 months, Kpler added. More is on the way, too. At least six April and May loading Espo cargoes are pointed at the US, said market sources. Espo cargoes are typically 730,000 bbl to 1.03 million bbl in size. Even so, some Espo spot cargoes may remain unsold. Without the US outlet, Espo would otherwise have “nowhere to go,” said a refiner source. China’s smaller market players have been snapping up heavily discounted Iranian and Venezuelan crudes, which can be disguised to look like they originated elsewhere (PIW Mar.26'21). Other volumes are blended and imported as bitumen mixes to circumvent US sanctions, a trick that has been going on for months now, said a trader. State-owned Chinese companies are likely not touching the sanctioned crudes, sources said. The buyers are mainly China’s independent refiners and other smaller Chinese players. The independents “are just banking on the fact that they won’t get sanctioned,” said a trader who markets to them. The surge in Iranian and Venezuelan crude imports, combined with heavy refinery turnarounds, have crushed China's demand for Espo. At least 1.53 million b/d of Chinese refining capacity starting planned maintenance this month will remain off line for part of May or beyond, while another 116,000 b/d or more of Chinese capacity is scheduled to begin turnarounds in May. China typically soaks up most Espo spot volumes, but Chinese demand for Espo “has been terrible,” especially from the independents, said a trader. This is reflected in Espo spot price differentials, which have cratered for March to May-loading cargoes. This in turn has created an unusual arbitrage opportunity for US buyers who have jumped on cargoes they normally wouldn’t touch. Staff Reports The full version of this story was previously published in Oil Daily sister publication Petroleum Intelligence Weekly.