Chinese oil refiners are caught in a difficult bind, forced to choose between risking devastating Western sanctions and abandoning the heavily discounted Russian crude that has made Russia their number one supplier. For now, it appears fear is winning.
State-owned giants Sinopec and PetroChina Co. are staying on the sidelines, canceling Russian shipments. This caution comes after the US slapped sanctions on Russian energy producers Rosneft and Lukoil. The message was reinforced when the UK and EU blacklisted a Chinese refiner, Shandong Yulong Petrochemical Co., for its dealings.
This blacklisting has sent a particular shockwave through the “teapot” refiners, the smaller, private firms. Many are now holding off on Russian purchases, fearing they could be next. This collective hesitation has caused prices for Russia’s ESPO grade to plunge, as a major source of demand has suddenly vanished.
The numbers are significant. Rystad Energy AS estimates that 400,000 barrels a day are affected by this buyers’ strike, a volume that could be as high as 45% of China’s total Russian oil imports. This is a direct hit to Moscow’s war chest, which the US and its allies are actively trying to empty.
As China, the world’s biggest crude importer, re-evaluates its sourcing, other suppliers could benefit. This includes the US, following a recent trade truce between leaders Trump and Xi. However, the situation is muddled, as teapots are also running low on import quotas, adding a domestic constraint on top of the geopolitical risk.