tcly/Shutterstock Save for later Print Download Share LinkedIn Twitter China could take up to 400,000 barrels per day of additional crude oil from Russia and possibly more, traders say.However, it is likely to wait for physical crude markets to settle down and market players to find ways to work within or around the G7 price cap and related shipping restrictions.Beyond this initial caution, traders say quality issues, involving high mercury and vanadium content in Russian Urals crude, will likely impose some constraints on the extent and pace of any increase in China's imports.China has been one of the main buyers to pick up Russian crude displaced from traditional markets in Europe, alongside India. With the EU introducing a formal ban on imports of Russian crude from Dec. 5, the appetite of these two countries to take more has become a key question for Russian production and global oil supply.Assuming that uncertainties related to the price cap and associated bans wane and market players figure out how to trade safely within or around the cap, China could eventually buy an additional 200,000 b/d-400,000 b/d of Russian crude, said a Chinese market source. Another source at a major global market player said China could potentially increase Russian crude imports by significantly more.Hidden VolumesOfficial Chinese imports of Russian crude averaged 1.74 million b/d in January to October of this year, up about 150,000 b/d from the same period of last year. This mostly comprises East Siberia-Pacific Ocean (Espo) crude imported through pipelines and by tanker, as well as some Urals crude.However, the official numbers appear to mask some hidden imports. China's imports of Malaysian crude averaged 612,000 b/d in January to October, running about 275,000 b/d higher than in the same period of last year. In September China reported imports of 991,000 b/d from Malaysia, but that greatly exceeded Malaysia's total September output of 363,000 b/d. The Malaysia tag has been used in the past to disguise sanctioned Venezuelan and Iranian crudes that are either blended with oil from elsewhere or simply "relabeled" before being sent on to China.Most Chinese refiners have bought Russian crude since the invasion of Ukraine, including national oil companies (NOCs) Sinopec, PetroChina and CNOOC, plus independent refiners and state-owned Zhenhua.Cautious ApproachChina's appetite for crude oil could be spurred if the relaxation of Covid-19 policies fuels demand growth next year, but sources point to several factors that could dampen demand for additional volumes from Russia. These include the long voyage for Russian crude displaced from Black Sea or Baltic ports to China, the reluctance of small "teapot" refiners to take more Russian oil without deeper price discounts, and caution among Chinese NOCs toward Western sanctions. Prospects will depend in part on how competitive Russian crude is, especially after factoring in the increased risk involved in handling grades affected by sanctions. A Chinese trading source stressed that it is difficult to predict exactly how much more Russian crude China could buy, especially as refiners could face increased competition from other Asian buyers like India if Urals is heavily discounted.Russian oil — including Espo crude — currently faces downward pressure from uncertainty about the G7 price cap, China's generally weak demand for crude and competition from sanctioned Iranian and Venezuelan crude.Only a few cargoes of Russia's Urals export grade are currently heading to China, and those were loaded before the price cap took effect, said Emma Li, a China-focused analyst at data analytics firm Vortexa.Those cargoes were loaded in November and should arrive at Chinese ports in late December, assuming they do not stop in Singapore, she added.Quality IssuesChina already dominated the buying of spot Espo crude before Russia's invasion of Ukraine. Those cargoes are loaded at Kozmino in Russia's Far East.But China's recent purchases of Urals involve crude that is normally exported via ports in western Russia. While Espo takes less than a week to ship to Northeast China, imports of Urals can involve a long voyage of up to two months. Urals also contains high levels of mercury and vanadium, which limits the number of Chinese refineries that can process the grade and the volumes they run.Mercury poses a major health and safety risk for refineries that lack mercury removal units (MRUs). Urals likely can only make up less than 5% of total crude feedstock at such plants, said a source at an Asian refiner. And even for refineries with MRUs, mercury can still linger in crude distillation units, posing a safety risk, he said.Vanadium can contaminate the catalyst in a refinery’s main gasoline upgrading unit, he added, requiring Urals to be blended with other crudes in order to be processed.These constraints will likely limit Urals to 10%-15% of the crude feedstock of refineries with MRUs, refining sources said, although this could be pushed to 30%-40% by refineries that are able to double treat mercury.New MarketsRussia needs to find new markets for most of its crude sales to the EU, with a few exceptions for exempt countries. The volumes in question averaged 700,000 b/d in November and 1.1 million b/d in October. India, the other main Asian buyer of Russian crude, ramped up its purchases after the invasion of Ukraine from modest volumes in 2021 to recent levels of around 900,000 b/d. It increased loadings to 1 million b/d in November and around 1.3 million b/d in the first 11 days of December, although these volumes represent only initial data. India has the capacity to take as much as 1.5 million b/d from Russia, sources say.