The heavily discounted Russian oil that once flooded the Chinese market is now considered too “hot” to handle. A fresh wave of sanctions has made the risk of purchase greater than the financial reward, prompting a widespread “buyers’ strike” from Chinese refiners.
State-owned giants Sinopec and PetroChina are canceling cargoes, wary of US sanctions on Russian producers Rosneft and Lukoil. Smaller “teapot” refiners are also in retreat, spooked by the UK/EU blacklisting of one of their own, Shandong Yulong Petrochemical Co.
The impact has been severe. Rystad Energy AS estimates that 400,000 barrels a day are affected, or as much as 45% of China’s Russian oil imports. This sudden demand vacuum has caused prices for Russia’s ESPO crude to plummet.
Russia had cemented itself as China’s top supplier by offering these discounts after the Ukraine invasion. Now, the US and its allies are ratcheting up the pressure, targeting the customers to choke off Moscow’s war-funding revenues.
As China, the world’s top crude importer, steps back, a supply gap opens. This could benefit other producers, including the US, following a recent trade truce. However, the blacklisted Yulong is now buying more Russian oil out of necessity, creating a paradoxical situation in the muddled market.