Seaborne Russian crude offers to China continue falling amid oversupply

Discount for seaborne Russian crude cargoes offered to China's independent refineries has continued to widen amid oversupply, as Indian refiners are set to cut purchases and China enters the Lunar New Year holiday period, five Shandong-based refiners and traders told Platts, part of S&P Global Energy, on Feb. 13.

This comes following media reports on Feb. 12 that Russia outlined potential areas for economic cooperation with the Trump administration, including a possible return to using the US dollar in bilateral dealings after any Ukraine war settlement.

Two market analysts said the price declines indicate the likelihood of a Russia-US deal—which could affect Russia's energy supply to China—remains low in the near term.

The Far East-loading ESPO barrels were offered at a discount of around $8.5/b against the ICE Brent Futures on a DES Shandong basis on Feb. 13, with refiners expecting the tradable discounts at $8.5-$9/b, according to trade sources. They added that no deal was heard at minus $9/b yet.

In comparison, ESPO Blend was offered at a discount of around $7.5-$8/b on the same basis on Feb. 9, and around $7.5/b on the same basis on Jan. 6, Platts reported earlier.

"As Indian refiners cut Urals buying, [Urals] price inevitably declines first, which then drags down ESPO prices as well. Otherwise, if everyone buys Urals, there would be no buyers left for ESPO," a Shandong-based trader said.

Offers for Russian Urals were at a deeper discount of $12/b against the ICE Brent Futures on a DES Shandong basis on Feb. 13, compared to around $11-$12/b on Feb. 9, according to refining and trade sources in Shandong.

Russian crude supply has been "pretty solid, pretty resilient" despite significant sanctions implemented following its invasion of Ukraine, but "cracks are beginning to appear," Vitol CEO Russel Hardy said Feb. 12, particularly with India agreeing to cut imports.

In addition to the Chinese state-run oil giants, Indian refiners are expected to gradually reduce their Russian crude imports as part of a potential India-US trade deal, leading to more seaborne barrels from the OPEC+ producer to compete with China's independent refining sector.

Another factor driving sentiment and prices this year is the growing volumes of oil on water, Hardy said, adding that 40 million barrels of Russian crude have been added to its shipping fleet over the last 60 days.

"That's roughly 1 million b/d that is not reaching a refinery, it is just sitting on the high seas," he said.

"There are less and less places for Russian oil to go," Hardy said, adding that China is now the only real "home" for Russian and Iranian barrels.

Holiday mode

However, "a few buyers from the [Chinese] independent sector have left the market ahead of the [Lunar] New Year, partly because they don't expect any significant change in the fundamentals, regarding Russian crudes, in a short term," a second Shandong-based trader said.

The nine-day Lunar New Year holiday in China, starting Feb. 15, is one day longer than in 2025. Business operations at Chinese companies have slowed than usual, with working schedules in the remaining February set with sufficient stocks, according to market sources.

The refineries in Shandong imported 6.4 million metric tons (1.51 million b/d) of Russian crude in January, up 11.7% from the previous high of 5.77 million mt in December, which was the first time the monthly volume exceeded the 5-million-mt mark, data collected by Platts showed.

The refining sector in Liaoning province also imported about 766,000 mt of Russian crude in January, surging 283% from 200,000 mt in December.

These volumes would bring China's total Russian crude imports to about 10.6 million mt in January, including about 800,000 b/d via pipeline.

As more independent refineries are expected to be involved in the Russian crude market for March deliveries, China's crude imports from the alliance are expected to surpass the previous high of 10.81 million mt seen in March 2024, despite state-run oil majors staying away from seaborne barrels, trading sources and analysts said.