CHINA DATA: Independent refiners' Russian crude imports stable in Jan despite sanctions, blacklists

Deliveries of Russian crude to China's independent refineries remained steady month over month in January, despite the US expanding its sanctions list and the Shandong Port Group banning sanctioned ships, data from Platts, part of S&P Global Commodity Insights, showed Feb. 17.

However, the volume is likely to retreat in February as surging freight discourages buying from small independent refineries until suppliers settle to circumvent the sanctions and blacklists,trading and refining sources said.

Crude arrivals from Russia, comprising ESPO, Sokol, Urals and Sakhalin Blend, stood at 2.370 million mt (560,390 b/d) in January for the whole independent sector, compared with 2.367 million mt (559,680 b/d) in December.

Meanwhile, the mega refinery Shenghong Petrochemical increased Russian crude buying for January delivery, compensating for a month-over-month reduction in the small independent refineries.

This stable level persisted despite longer discharging procedures, as the US and UK added more than 183 ships carrying Russian crude oil to the sanctions list on Jan. 10, while China's Shandong Port Group has banned sanctioned ships since Jan. 7. Shandong ports serve most of China's small independent refineries, which have production capacities of 40,000 b/d to 214,000 b/d and are the buyers of sanctioned crudes.

This suggests that the immediate impacts of sanctions and blacklists on Russian inflows were limited compared with those on Iranian imports, which slumped 44% to under 3.6 million mt (851,000 b/d) in January from about 6.28 million mt (1.48 million b/d) in December, Platts reported.

Sanctioned fleets

Platts data showed six newly sanctioned ships discharged 575,000 mt of Russian crude in January after being included on the list. Five of them discharged 480,000 mt with exemptions, as they were loaded prior to Jan. 10. The remaining newly sanctioned ship diverted to Yangshan port in Shanghai to discharge 95,000 mt of Russian Sokol crude, as it was loaded after Jan. 10 and blacklisted by the ports in Shandong.

Among the Russian grades, Sokol and Sakhalin Blend are struggling more to discharge as icebreakers carry most of the cargoes. Most of the shadow icebreakers are included in the new sanction list.

Another Sokol cargo carried by the newly sanctioned Nikolay Zadornov unloaded at Zhoushan port in Zhejiang province on Feb. 13, according to S&P Global Commodities at Sea.

"All these Russian or Iranian cargoes will eventually go to Shandong for the teapots," said a storage source who was willing to store sanctioned barrels.

ESPO inflows

The most popular ESPO crude arrivals jumped 21.4% from December to around 1.7 million mt in January, Platts data showed.

However, CAS data showed that the volume is likely to fall in February as few leading buyers from the independent sector suspended ESPO procurement in the latest trading cycle.

A Shandong-based trader said the ESPO cargoes carried by non-sanction vessels became less competitive while the logistic risk rose for the barrels shipped by sanctioned fleets.

According to trading and refining sources, offers for ESPO stood at a premium of approximately $2.50-$2.70/b against ICE Brent Futures on a DES Shandong basis for March delivery on Feb. 18. This premium is still higher than the premiums of $1.50-$2/b in December prior to the new sanctions.

Only a few deals were done over the past few days, as the high price kept Shandong independent refiners at bay; they added that offers once hit a premium of $3/b.

In contrast, one independent refiner opted for Iranian Light crude, which remains offered at a discount of around 80 cents/b to $1/b against the same benchmarks.

Falling freight, alternative ports

Looking forward, an analyst in Beijing noted, "The logistical bottleneck from Russia to China is expected to ease soon, with descending freights and more Chinese ports likely willing to receive shadow fleets, which will help sustain import volumes from Russia."

Russian crude shipping freight rates to China have decreased as several tankers resumed operations between Kozmino and Chinese ports, providing some relief to buyers on one of Asia's busiest oil routes.

According to Platts assessment, Aframax freight rates surged dramatically from $16.25/mt on Jan. 10 to $70/mt by Jan. 20 before stabilizing at $45/mt over Feb. 12-17.

Meanwhile, suppliers were seeking alternative terminals, particularly private facilities, to discharge Russian cargoes from the ships that are blacklisted by Shandong Port Group.

For instance, on Feb. 11, the Panama-flagged ship SI HE, which is on the latest sanctions list, successfully discharged around 100,000 mt of Russian ESPO at Dongying port, believed to be via private terminals.

In January, Russian ESPO blend crude loadings from Kozmino port decreased to 37 ships, from a record high of 41 in December.

Of these 37 cargoes, each weighing 100,000 mt (approximately 730,000 barrels), 34 were headed to China, while the remaining three were destined for India.

Platts collects information from various sources, including CAS, Kpler, shipping fixtures, port sources and shipbrokers.

Top feedstock suppliers for China's independent refiners ('000 mt)

Top feedstock imports for China's independent refiners ('000 mt)

^mostly Iran-origin

*Including imports from other countries, and other grades

Source: Platts