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Weak Chinese demand drives rare flow of Russian ESPO oil to U.S. -sources

Weak Chinese demand drives rare flow of Russian ESPO oil to U.S. -sources

· 03/17/2021 05:47
Weak Chinese demand drives rare flow of Russian ESPO oil to U.S. -sources

Mercuria, Chevron book tankers to ship ESPO crude to U.S.

ESPO crude last loaded for U.S. in July 2019 -Refinitiv

Muted China demand, low freight, wide EFS enable ESPO arbitrage

By Shu Zhang and Devika Krishna Kumar

- More than 3 million barrels of Russian ESPO crude are heading to the United States after a gap of over a year as muted demand from Chinese independent refiners and low freight rates make the trade viable, according to trade sources and Refinitiv data.

Trading house Mercuria has provisionally chartered three cargoes of ESPO Blend crude loading from Russia's Far East port of Kozmino at the end of March to head to the United States, Refinitiv shipping data showed.

Oil major Chevron Corp CVX.N has also chartered one vessel with nearly 1 million barrels of ESPO crude to depart from Russia in late March, the data showed.

It will take half a month for the ships to arrive at the U.S. west coast.

The United States last loaded an ESPO crude cargo in July 2019, a year in which it bought 2.44 million barrels of the Russian grade, Refinitiv oil research data showed.

No ESPO crude traded to the United States in 2020.

Spot premiums for ESPO crude ESPO-DUB have fallen on low Chinese demand while low freight rates and a wider price spread between Brent and Dubai benchmarks DUB-EFS improved arbitrage economics, traders told Reuters.

The Brent/Dubai Exchange of Futures for Swaps (EFS) has been hovering around $3 since last week, its highest since November 2019. DUB-EFS-1M

Two of the ESPO Blend cargoes were to buyers Marathon Petroleum Corp MPC.N and Chevron on the U.S. west coast, trade sources said. The cargoes were priced at about $1.50 above Dubai quotes, one of the sources said.

Oil companies typically do not comment on their trades.

Russian ESPO is usually a China-focused grade popular among independent refiners in the oil refining hub of Shandong, thanks to its geographic proximity, requiring only three or four days of shipping.

But the independent refiners' crude purchases have been slow over the past weeks, partly because of an increase in cheap Iranian oil inflows. nL4N2KH0L1nL1N2KW0OG

"Teapot demand has been covered by these (sanctioned oil)," said one of the traders who supply to the China market.

More than 10 independent refiners plan to shut for maintenance between March and June.

"Teapot maintenance has gradually started in March and is most concentrated in May and June. The expected run rate will be as low as 60% to 65% overall," said Zhou Guoxia, an analyst at local consultancy JLC.

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Charterer

NEVERLAND DREAM

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2021/4/15


Mercuria

MONTE SERANTES

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2021/3/31

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Mercuria

AQUALIBERTY


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2021/3/31

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Mercuria

PLUTO MOON

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2021/3/23

2021/4/7

Chevron


Weak Chinese demand sparks rare Russian ESPO oil flows to the U.S.https://tmsnrt.rs/3vvP9BU

Weak ESPO premiums, widening Brent-Dubai spread spur rare ESPO trades to the USAhttps://tmsnrt.rs/3cFeHnF

(Reporting by Shu Zhang and Florence Tan in Singapore, Devika Krishna Kumar in New York; Editing by Clarence Fernandez)

((shu.zhang@thomsonreuters.com; +65-6870-3549; Reuters Messaging: Twitter @shuzhang4))