Chinese independent refiners’ demand for Russian crude remains weak

Demand for Russian crude among China's independent refineries, most of which are located in eastern Shandong province, remains weak amid lower margins even after the latest 30-day extension of a US sanctions waiver, refinery and trade sources told Platts, part of S&P Global Energy.

Sluggish demand has led to thin buying interest that has not been boosted by the new sanctions waiver, according to two independent refinery sources in Shandong.

Persistent losses from processing imported crude have remained the main factor discouraging independent refiners from securing feedstock for future production.

"Margins are still at a loss of around Yuan 1,000/metric ton, so demand for feedstocks remains low," a Shandong-based analyst said.

Data from local energy information provider JLC showed that the average utilization rate at independent refineries in Shandong fell to 53.5% in the week of May 7-13, down 1.31 percentage points from the previous week. That marked a further decline from 55.1% in the final week of April and is expected to fall further in May, according to JLC.

Russian imports fall

China's independent refineries imported a combined 4.2 million mt, or about 1 million b/d, of Russian crude in April, down 31.5% from 6.36 million mt, or 1.5 million b/d, in March, according to data compiled by Platts.

The decline was largely driven by stronger competition for Russian barrels, as China's state-owned refiners and other Asian buyers increased purchases, reducing cargo availability for independent refiners.

By grade, independents imported about 2.5 million mt of Russian ESPO in April, down from 3.3 million mt in March. Imports also included about 1.1 million mt of Urals and 400,000 mt of Sokol.

Within Shandong, the 20 million mt/year private refining complex imported a combined 2 million mt of Russian crude in April, down by 13% from 2.3 million mt a month earlier, according to Platts data.

The April intake included 1.6 million mt of ESPO, three Urals cargoes and one Sokol cargo.

Russian ESPO crude for July delivery was heard at a premium of $3.50-$4.00/b over ICE Brent futures on a DES Shandong basis, down from premiums of $6.50-$7.50/b for June cargoes, reflecting cautious procurement sentiment.

Even with lower premiums, most independent refineries showed limited interest in buying feedstock for production.

"There were some inquiries last week, but no deals were heard concluded, as most refineries were still quite cautious about purchasing feedstock," a trader in Shandong said.

Waiver extension

The US on May 18 issued another 30-day sanctions waiver for Russian oil already at sea. The new general license marked the third 30-day waiver issued for waterborne Russian oil since the start of the war in the Middle East. The first waiver was issued on March 15 and the second on April 17.

At the time of the second waiver, US Treasury Secretary Scott Bessent said energy-poor countries had requested the extension.

"The waiver was extended again, which could indicate that the Strait of Hormuz might not be passable in the near term," an independent refinery source in Shandong said.

As of May 18, only 15 million barrels of crude loaded on eight tankers had passed through the Strait of Hormuz this month, according to data from S&P Global Commodities at Sea. None of those cargoes was Iranian crude.

That compared with about 23.44 million barrels of Iranian crude passing through the Strait of Hormuz during the same period last month, accounting for about 53.3% of total transit volumes.