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Russian Oil Going About 10% Cheaper in China as Flows Upended

·2 min read

(Bloomberg) -- China’s appetite for cheap Russian oil continues to reverberate through the global market, with buyers being offered their favorite crude from the OPEC+ producer at a deep discount to similar-quality barrels.

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Russian ESPO oil from the nation’s east is being offered at a discount of $10 to $12 a barrel to competing varieties from Brazil, said traders with knowledge of the matter. The flow of cheap Russian crude to China has already forced Iran to discount some of its grades and crimped imports from West Africa.

The price of ESPO is about 10% lower than Brazilian crudes such as Lula and Sapinhoa, taking into account costs such as freight, traders said. The grades are sought after by Chinese refiners because of the relatively low sulfur content and sizable yield of distillates such as diesel.

China and India have become willing buyers of Russian crude after most in Europe and the US halted direct imports following the invasion of Ukraine. US Treasury Secretary Janet Yellen is currently traveling through Asia championing a price cap on Russian oil to limit revenues that help the Kremlin fund its war, while still keeping flows from the OPEC+ producer on global markets.

ESPO is being offered at a discount of about $1 to $2 a barrel to London’s Brent oil price, said traders, compared with Lula and Sapinhoa that are being offered at premium of around $10 to the global benchmark. Prices are quoted on a delivered basis to China, they added. Tight physical markets are lifting spot differentials for cargoes from all corners of the world.

Traders said Russian grades such as ESPO are among the cheapest available in the spot market after taking into account its quality and yield. Cargoes can be shipped to China in around five days, compared with two months for oil from Brazil.

China’s independent refiners, known as teapots, and state-own processors have purchased most of the cargoes of ESPO that are shipped from Kozmino port in the past weeks, traders said. Cheaper Russian crude is allowing companies to cash in on improving refining margins as they boost processing rates.

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