Key Takeaways:
Sinopec Corp, the world's biggest refiner, has redirected 5% to 6% of its processing capacity to Russian Far East crude for July-September deliveries, replacing Saudi barrels squeezed by the Iran war, according to trade sources and ship tracking data.
China's state-owned refiner bought 30 to 40 shipments, or about 241,000 to 320,000 barrels a day, of Russia's Eastern Siberia-Pacific Ocean (ESPO) blend for the third quarter, several sources with direct knowledge of the trades said. That equals 5% to 6% of Sinopec's 5.2 million barrel-a-day processing capacity, and the purchases have helped it hold throughput steady and ship surplus fuel on strong export margins even as Beijing restricted overseas fuel sales from March to protect domestic supply.
"Sinopec's crude demand appears to have bottomed out following the easing of fuel export restrictions, but the recovery remains selective," said Emma Li, lead China analyst at ship tracker Vortexa Analytics. "Rather than broad-based import growth, demand is shifting towards barrels with greater delivery certainty and lower freight costs — primarily onshore inventories and short-haul Russian Far East cargoes."
Sinopec secured about 7.4 million barrels of ESPO in July, mostly delivered into Rizhao port in the refining hub of Shandong province, and has bought at least 10 cargoes each for August and September, according to Li and four traders who follow the ESPO market. The grade typically ships in Aframax vessels carrying 740,000 barrels. September-loading ESPO traded at a $1 to $2 discount to benchmark Brent, about $10 cheaper than rival grades such as Middle Eastern Oman and Brazil's Tupi, traders said — a discount that has narrowed from roughly $10 before the Iran war as demand for the short-haul grade surged.
The shift marks a sharp reversal for Sinopec, which sourced nearly half its crude from the Middle East before the Iran war and ranked among Saudi Arabia's biggest customers. It took no Saudi crude in June and July and only 2 million barrels in August, trade sources said — far below the 20 million barrels imported in both March and April, and less than a fifth of the 11 million barrels it averaged each month in the year before the conflict began.
The pivot follows a suspension of Russian purchases in October, when Washington imposed sanctions on top producers Rosneft and Lukoil. Sinopec resumed buying in March and April after a temporary U.S. waiver, taking roughly 10 cargoes, then increased volumes after the waiver expired as the Iran war squeezed supply. Its recent ESPO purchases have not involved sanctioned entities as counterparties and were made through intermediaries, four people familiar with the matter said, with payment settled in Chinese yuan — a practice Sinopec has used since the early days of the Ukraine war.
Beijing does not recognize what it calls unilateral sanctions, and independent Chinese refiners have continued buying Russian oil throughout. The procurement shift carries wider implications for crude pricing: China, the world's top buyer, cut overall imports 41% in June from a year earlier, yet its selective demand for discounted Russian barrels is tightening the market for Middle East grades and strengthening Moscow's position as Beijing's key energy supplier. If the Iran war keeps Gulf supply constrained into the fourth quarter, Sinopec's reliance on ESPO is likely to deepen, further eroding Saudi Arabia's pricing power in its largest market.
This article is for informational purposes only and does not constitute investment advice.
