Russia's ESPO Blend crude value plunges as buyers vanish, freight rates surge

Far East Russia's ESPO Blend crude values plunged to 17-month lows as Russian oil trade froze following the Jan. 10 sanctions on the country's energy sector while shipowners demanded increasingly lofty premiums to send cargoes to China.

Platts, part of S&P Global Commodity Insights, assessed front-month ESPO Blend at a $9/b discount to Platts Dubai crude assessments, FOB, at the Jan. 16 Asian close, down from a $1.70/b discount to the same benchmark Jan. 10 prior to the sanctions, and at a low last seen on June 1, 2023.

Russian oil traders and buyers that Commodity Insights spoke to over the week of Jan. 13 said trade in ESPO Blend has largely frozen as Chinese independent refiners -- the main buyers of the grade -- shunned further purchases as they figured out a workaround to unload oil from sanctioned ships at Chinese ports.

A trader valued March ESPO Blend crude as low as a $10/b discount to Platts Dubai, FOB, while a second trader valued the grade at a $8/b discount to Platts Dubai, FOB.

"You have to reflect the FOB value now in lieu of China-delivered trades, as nobody will touch this resource. The differential will crash as the payment book is not approved," the second trader said.

Much of the pressure on ESPO Blend values comes from surging freight rates to ship oil from the main loading port of Kozmino to northern China, where the bulk of the country's independent refiners are located.

Platts assessed the Aframax rate to ship ESPO Blend from Kozmino to North China at lump sum $6.25 million as of Jan. 16, Commodity Insights data showed, up from $1.625 million Jan. 10.

Sources at several independent refiners, most of whom typically buy ESPO Blend on a delivered basis, said they were counting on their suppliers to make good on their shipments and find alternative, unsanctioned ships to unload the cargoes.

"No cancellations at present, still waiting for efforts from our supplier to change the vessel," a source at one independent refiner said.

"If the port's refusal for berth continues in the next couple of days, and the supplier's guarantee for delivery remains uncertain, we will consider lowering [our run] rate," a second independent refinery source said.

A third refinery source said they might seek to cancel at least one of their Russian cargo shipments pending approval from management, echoing other sources who have said most Russian crude purchases for January loading will likely be canceled.

According to sources, at least four Aframax ships that have loaded ESPO Blend since the sanctions cut-off date of Jan. 10 have been floating outside ports in Shandong waiting to be discharged.

Prior to the sanctions, strong demand for ESPO Blend had seen delivered prices to China reach levels not seen in two years, at premiums of just above $2/b to ICE Brent crude futures, DES Shandong for February-arrival cargoes. Sources said those premiums are unlikely to be re-negotiated post-sanctions.

One trader said any delivered sales of ESPO Blend at this point will likely also see a sharp plunge in value, with differentials swinging back to discounts against ICE Brent, DES China.

"The reaction to the latest sanctions is more severe than when the $60/b price cap was introduced in December 2022," the trader said.

Commodity Insights earlier reported that ESPO Blend loadings from Kozmino reached a record 41 ships in December, with all but one shipment sent to China.

The latest package of sanctions has triggered an upheaval in the broader tanker market, with surging VLCC freight rates to ship crude to Asia from all over the globe.

Middle East crude premiums, meanwhile, have surged as Asian refiners turned to the region as their main feedstock alternative. Platts assessed the benchmark cash Dubai at a $4.73/b premium over Dubai futures Jan. 16, the widest since $4.99/b reached Nov. 1, 2022. The spread has averaged $2.42/b to date in January, compared to the $1.109/b average in December 2024, Commodity Insights data showed.