Espo Crude Slips on Soft Chinese Demand

The spot market for Russia’s key East Siberia-Pacific Ocean (Espo) crude oil has slipped due to soft Chinese appetite and the continuing uncertainty cast by the Delta variant. Espo is one of Russia’s two major crude exports and is the largest crude export stream in the Asia-Pacific. October-loading Espo spot cargoes traded at premiums ranging from around $1.70 per barrel to $2.20/bbl to the Dubai benchmark price, said multiple Asian market sources. The levels are weaker than the previous month, when September-loading spot Espo cargoes had traded at premiums ranging from $2.20/bbl to around $2.90/bbl to Dubai. A key driver this month has been soft Chinese demand, which continues to be dented by many independent refiners running low on crude import quotas and continued uncertainty over whether the government would release a fourth round of import quotas, said four market players. The government’s release of crude import quotas has been unusually uncertain this year and there are fears that a fourth round would not be coming, causing some independents to hold back from buying October Espo for fear of not being able to actually import the crude, said a market source. On top of that, the government’s increased scrutiny of how independents have been using their quotas and the authorities’ clampdown on the resale of the quotas between independents have further crimped the smaller refiners' ability to buy crude, said a Chinese market player. And “so the Espo market in Shandong is cooling down a lot,” he added. Market sources also pointed to the uncertainty that the highly infectious Delta variant is casting over demand as affecting the October Espo spot market. Hurricane Ida Disrupts Diesel Hurricane Ida has knocked out around 2 million barrels per day of US Gulf Coast refining capacity off line this week, threatening to pull large volumes of diesel across the Atlantic at a time when Europe can’t really spare it. Europe’s own road fuel buying has hit its post-pandemic summer stride while regional refining remains compromised by weaker jet fuel and when normally mainstay Russian ultra-low-sulfur diesel (ULSD) imports are still missing from the supply picture. Brokers said traders were still assessing the situation on Sep. 1 with rumors of a low-ball September Primorsk program clouding the issue. Just 1.075 million metric tons of Russian ULSD is expected to load from Primorsk this month, the lowest in 11 months and 15% below volumes seen in September last year. Refinery maintenance and competing domestic demand inside Russia have kept Primorsk loadings close to the 1 million ton per month mark for the last three months in a row. Volumes are down from an average 1.5 million tons/month in the first half of the year, according to Energy Intelligence data, in sharp contrast to the step-up in European buying. European ULSD is already trading at its highest value relative to crude since the early days of the pandemic in May 2020 with underlying ICE low-sulfur gasoil futures flipping into a near-month backwardation for the first time since February to reflect fuel shortages. Tanks are draining in response with closely watched gasoil stocks in Amsterdam-Rotterdam-Antwerp falling to a 14-week low of barely 2 million tons last week, according to Insights Global. Diesel stocks are now 25% below year-earlier and 2019 levels. Spot Crude Oil Prices $/bbl f.o.b. terminal