Private refiners in China have been buying up Russia’s ESPO oil faster than usual as a standoff with Iranian sellers over pricing continues.
Cargoes for February arrival — as much as 3.8 million tons — were sold out within the first two weeks of the month, according to traders who asked not to be named because the information isn’t public. Russia has lowered prices for ESPO, from the eastern part of the country, making the trade more attractive to China’s independent refiners.
Those processors, known as teapots and mainly based in Shandong province, have sought ESPO as Iranian sellers hold out for higher prices, according to traders. While oil from the Persian Gulf producer is still among the world’s cheapest, there are currently no deals being settled, they said.
Teapots, which account for more than a quarter of China’s refining capacity, have long benefited from their willingness to purchase oil shunned by other buyers who are wary of potential penalties from Western nations. However, demand for Venezuelan crude has increased following a sanctions waiver from the US, and Iran’s move is in line with a wider increase in prices on restricted oil.
Those price increases have boosted the lure of ESPO, which was already a popular grade among teapots due to its relatively low costs and short shipping distance. In December, more than 90% of the vessels hauling ESPO cargoes headed to China, the world’s top oil importer, according to ship-tracking data compiled by Bloomberg.
Earlier this month, the nation’s private refiners won a massive crude-import quota from the government, enabling them to freely make buying and production plans for up to a year.
