Exclusive: Chinese state refiners shun new Russian oil swaps, teapots go under the radar

  • Sinopec, CNOOC, PetroChina, Sinochem refrain from new purchases
  • Sanctions concerns keep state-owned companies at bay
  • Some independent refiners continue to import ESPO crude

SINGAPORE, April 6 (Reuters) – Chinese state refiners are honoring existing Russian oil contracts but avoiding new ones despite deep discounts, heeding Beijing’s plea for caution as Western sanctions escalate against Russia for its invasion of Ukraine, six people told Reuters.

State-owned Sinopec (600028.SS), Asia’s largest refiner, CNOOC, PetroChina (601857.SS) and Sinochem stayed away in trading fresh Russian cargoes for May shipments. said the people, who are all aware of the matter but spoke on condition of anonymity given the sensitivity of the topic.

Chinese state-owned companies do not want to be seen as openly supporting Moscow by buying additional volumes of oil, two of the people said, after Washington banned Russian oil last month and the European Union imposed sanctions on the main Russian exporter Rosneft (ROSN.MM) and Gazprom Neft (SIBN.MM). Read more

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“The state-owned companies are cautious because their actions could be seen as representing the Chinese government and none of them want to be named as a buyer of Russian oil,” one of the people said.

Sinopec and Petrochina declined to comment. CNOOC and Sinochem did not immediately respond to a request for comment.

China and Russia have developed increasingly close ties in recent years and as recently as February announced a “limitless” partnership, and China has refused to condemn Russia’s action in Ukraine or call it an invasion. Read more

China has repeatedly criticized Western sanctions against Russia, although a senior diplomat said on Saturday that Beijing was not deliberately circumventing sanctions against Russia.

China, the world’s biggest oil importer, is the top buyer of Russian crude at 1.6 million barrels a day, half of which is supplied through pipelines under government-to-government contracts.

Sources expect Chinese state-owned companies to honor their long-term, existing contracts for Russian oil, but avoid new spot deals.

A drop in Chinese imports of Russian oil could prompt its giant state refiners to look to other sources, adding to global supply concerns that had pushed benchmark Brent oil prices to 14-year highs. nearly $140 a barrel in early March after Russia invaded Ukraine on February 24. read more

Brent crude futures have since fallen below $110 after the United States and its allies announced plans to release stocks of strategic reserves. Read more

“RISK CONTROL AND COMPLIANCE FIRST”

Prior to the Ukraine crisis, Russia supplied 15% of China’s oil imports – half via the Eastern Siberian and Atasu-Alashankou pipelines and the rest via tankers from its Black Sea, Baltic Sea and Far East.

Unipec, the trading arm of Sinopec and one of the main buyers of Russian oil, has warned its global teams in regular internal meetings in recent weeks of the risks associated with Russian oil.

“The message and tone are clear – risk control and compliance come before profits,” said one of the sources who was briefed on the meetings.

“Although Russian oil is extremely short, there are many problems like shipping insurance and payment issues.”

Another of the sources, with a refinery that regularly processes Russian crude, said its plant had been instructed by Unipec to find a replacement to maintain normal operations.

“Beyond the shipments that arrived in March and are due to arrive in April, there will be no more Russian oil in the future,” the source said.

Unipec loaded 500,000 tonnes of Urals from Russia’s Baltic ports in March, the highest volume in months, supplied by Surgutneftegaz on site and as part of a Rosneft export tender that Unipec won for shipments between September 2021 and March 2022, according to traders and shipping data.

Its latest Urals deals will be two April shipments totaling 200,000 tonnes from Russian producer Surgutneftegaz (SNGS.MM), two traders familiar with the deals said.

By contrast, India has so far reserved at least 14 million barrels, or about 2 million tonnes, of Russian oil since Feb. 24, compared to almost 16 million barrels for the whole of 2021, according to the Reuters calculations. Read more

Other state buyers – PetroChina, CNOOC and Sinochem – shunned Russia’s ESPO mix for the May loading, sources said.

Sinopec faces payment problems even for deals made earlier as risk-averse state banks seek to cut funding for Russian oil deals, the second source said.

TEAPOTS KEEP OFFERS “UNDER LAYERS”

Sanctions concerns have caused some independent refiners known as teapots, once a vibrant group of customers consuming about a third of China’s imports of Russian oil, to fly under the radar.

“ESPO trading was really slow and secretive. Some deals are going on, but details are being kept under wraps. No one wants to be seen buying Russian oil in public,” a regular ESPO dealer said.

To keep the oil in circulation, these nimble refiners are deploying alternative payment mechanisms such as cash transfer, payment after cargo delivery, and the use of Chinese currency.

Russian suppliers – Rosneft, Surgutneftegaz and Gazprom Neft, and independent producers represented by Swiss trader Paramount Energy – are expected to ship a record 3.3 million tonnes of ESPO from the port of Kozmino in May. Read more

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Reporting by Reuters, Chen Aizhu and Florence Tan in Singapore; Editing by Himani Sarkar

Our standards: The Thomson Reuters Trust Principles.

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