Russia's Far East ESPO Blend crude differentials for delivery to China in July-August have slipped to around parity with ICE Brent, pressured by weak Chinese demand and expectations of higher global supply following a US-Iran peace deal, three trading sources said.
The softer pricing trend, also visible in India — the second-largest buyer of Russian crude — is further constraining Moscow's revenues, already under pressure from lower global oil prices.
The US waiver on Iranian oil may push ESPO Blend differentials down to a discount against the ICE Brent benchmark in China. One source added that Russian oil suppliers paused offers on Tuesday following the announcement.
Cargoes for July-August delivery have been trading at parity to ICE Brent, or at a small premium of less than $1 per barrel on a delivered basis into Chinese ports, the sources said.
Some June–July cargoes were sold at discounts to benchmark Brent, although traders described these as a tiny percentage of all deals.
Several teapots in China's oil refining hub, Shandong province, planned maintenance for June and July following refining losses due to high oil costs and weak demand.
Shandong Yulong Petrochemical, one major Russian oil buyer, shut one of its two crude units about two weeks ago for maintenance, Reuters reported. The shutdown of the 200,000-barrels-per-day crude unit is expected to last around a month.
The average operations rate among Shandong teapots dropped below 50 per cent in recent weeks to the lowest level so far this year, said two traders.
Teapots' margins also improved largely thanks to a sharp drop in the Brent price. Local consultancy Oilchem estimated Shandong independent refiners' average profits last week at CNY126 ($18.58) per tonne.
They had been making losses for the past two months.
Despite weaker pricing, ESPO Blend export volumes remain robust, holding above one million bpd for most of the time this year, traders say, and shipping data shows.
(Reporting by Reuters; Editing by Sharon Singleton)