Chinese refiners snap up Oct. ESPO Blend cargoes amid Middle East disruptions

Private and state-run refiners in China have actively secured Far East Russian ESPO Blend crude cargoes, locking in more than two-thirds of the October-loading program ahead of schedule and driving up deal prices, amid shipping disruptions in the Middle East, according to Chinese refinery and trade sources on Aug. 11.

Although the trading cycle for October-delivery ESPO cargoes typically begins in mid-August, with around 42 cargoes of about 100,000 mt each on offer, at least 30 cargoes had already been sold to Chinese refiners as of Aug. 11, indicating strong demand, the sources said.

Prices for October cargoes were concluded at parity to ICE Brent futures on a DES Shandong basis in the week ended Aug. 7, according to the sources. This was up from discounts of about $3/b against the same marker for September-delivery cargoes traded in mid-July.

Offers for the remaining October-delivery shipments were reported at premiums as high as $2/b on the same basis as of Aug. 11, according to an analyst in Shandong, who added that shipments discussed in the week ended Aug. 7 were priced at about a $1/b premium.

"Only a dozen cargoes are left for the teapots [small independent refineries] and Indian buyers," a Shandong-based trader said.

The 30 cargoes sold as of Aug. 11 were evenly split between a private refiner and a state-run refining company, the sources said. The volume was nearly double their combined purchases of 17 cargoes for July delivery, according to the sources.

A Shandong-based refinery source said October-delivery ESPO cargoes were expected to sell out quickly, ahead of the grade's usual trading cycle. Trading in ESPO Blend typically starts 1.5 months before the month of loading.

In July, about 35 of the 42 Russian ESPO Blend cargoes were discharged in China, according to S&P Global Commodities at Sea, with India receiving most of the remaining cargoes.

Competitive pricing, reliable delivery

A source at the state-run refinery said that Russian cargoes loaded from the Far East were competitively priced, and their arrivals were considered more reliable than those from the Middle East, given the disruptions in the Strait of Hormuz and Bab al-Mandab Strait.

Crudes of similar quality from other regions, such as Brazil, Angola, or the Middle East, were expected to incur a landed cost exceeding a $4/b premium to Dated Brent on a delivered basis to China, compared with discounts in the $1s/b against Dated Brent for delivered ESPO Blend cargoes, according to Platts data.

Prices for other crudes, such as Iranian Light -- which is the most favored crude among Chinese independent refineries -- were reported at a discount of about $3/b against ICE Brent futures for September arrival as of Aug. 11, compared with a discount of $4/b seen late in the week ended Aug. 7, according to the sources.