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Espo Prices Leap on Stronger Chinese Demand

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Stronger demand from China has boosted the spot market for Russian East Siberia-Pacific Ocean (Espo) crude and pushed up prices.

China’s thirst is driven by the country’s easing of its Covid-19 lockdowns, a potentially lower perception of risk from Western sanctions and the lure of relatively cheap Espo, Russia’s second-biggest export crude.

However, despite the rebound, spot Espo crude is still being sold at major discounts to other comparable crudes. Spot differentials are roughly $6.00 per barrel below where Espo spot cargoes traded at before Russia’s invasion of Ukraine.

Chinese Delivered Prices Leap

August-loading spot Espo had traded at discounts ranging from $3.00/bbl to $1.50/bbl to ICE Brent futures prices for crude delivered to China, said a Chinese market source. Another source saw August Espo change hands at a discount of about $2.00/bbl to ICE Brent.

But by the start of July, some August Espo was being sold at parity to ICE Brent, said a Chinese refiner source. Offers appeared to have gone up as high as a premium of $1.50/bbl, he added.

The August levels are a significant increase from last month, when July-loading spot Espo had traded at discounts ranging from $5.00/bbl to $3.00/bbl to ICE Brent futures delivered to China, with most volumes trading at the larger discounts.

These spot prices are likely paid by China’s independent refiners, who usually buy delivered crude at ICE Brent-linked prices.

August-loading Espo cargoes sold from the export port of Kozmino traded at levels ranging from around parity to the Platts Dubai benchmark price to a premium of $1.00/bbl on an f.o.b. basis, said two trading sources.

These prices would not include the freight, insurance and other costs or profits for middlemen that are baked into the delivered ICE Brent spot differentials. And the f.o.b. levels would better reflect what Russian producers are receiving for their seaborne Espo cargoes.

Demand Drives Price

A range of buyers, including those from national oil companies to independents are believed to have snapped up August-loading spot Espo, said Chinese market sources.

The Chinese government is easing up on lockdowns, leading Chinese refiners to source more crude.

Because Russian crudes like Espo are comparatively cheap, Espo is among Chinese refiners’ top choices, sources said.

This is especially the case for independents, which have always liked Espo for its quality and for how quickly it delivers to Northeast China, said a trader.

Freight costs from Kozmino to China have gone up, further pushing up the delivered spot price differentials for August Espo, said a China-focused trader.

On top of that, Chinese market players appear to have overcome earlier jitters following the imposition of US and European sanctions on Russia’s financial sector, sources said.

Those sanctions made finding trade finance difficult, but some buyers might have gradually found more ways to settle payments, one source said.

Russian Producers’ Prices Remain at Big Discounts

While prices have improved, Russian producers are unlikely to be happy as their Espo prices remain at “big discounts” relative to comparable crudes sold by other producers, which trade above benchmark prices, said a Chinese market source.

The levels are also a major collapse compared to spot price differentials concluded four months ago, before Russia’s invasion of Ukraine, for April-loading spot Espo cargoes.

Those cargoes had traded at much higher premiums ranging from around $6.20/bbl to around $7.10/bbl to the Dubai benchmark price.

Topics:
Crude Oil, Oil Prices, Sanctions, Oil Demand, Independent Refiners, Ukraine Crisis
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