Spot premiums for Russia's Far East ESPO Blend crude oil delivered to China in June have eased as weak refining margins curbed demand from independent refiners, three trading sources told Reuters.
ESPO Blend cargoes scheduled for June delivery traded at around $5 to $6 per barrel above ICE Brent on a delivered basis into Chinese ports, compared with premiums of about $8 per barrel for May supply, the sources said. Premiums vary by supplier and shipment terms, but traders said weaker demand was evident.
The decline came despite stronger global demand for Russian oil since early March after the Iran war severely disrupted Middle East exports, pushing premiums for Russian crude to record highs. Prices were also supported by Washington’s decision to temporarily waive sanctions on Russian oil at sea.
Traders said the waiver does not apply to ESPO Blend cargoes scheduled for June delivery, as it only covers shipments loaded before April 17. ESPO cargoes for China in June are expected to be loaded in the second half of May or in June.
The easing of ESPO premiums highlights the importance of Chinese demand, the grade’s main market, in price formation.
Weaker buying interest in China pushed ESPO prices below those of another key Russian grade, Urals, which was offered at premiums of around $7 to $8 per barrel, one source said.
Urals has higher density and sulphur content than ESPO and is normally discounted to the latter. Indian refiners prefer Urals as it yields more diesel and has a shorter shipping distance, traders said.
"India has ramped up Urals purchases, creating a hot market for the grade, while ESPO is less in demand there," one trader said, adding this had created an abnormal price gap in China.
Another source said Urals typically reaches China only when India rejects cargoes.
"Chinese refiners hold more feedstock inventories than Indian refiners, so they can wait for global prices to soften before buying," the source said.
(Reporting by Reuters reporters in Moscow and Siyi Liu in Singapore; Editing by Florence Tan and Louise Heavens)