Russia's ESPO Blend crude price flips to premium in Chinese ports

Reuters · 09/15/2023 11:48
Russia's ESPO Blend crude price flips to premium in Chinese ports

- Рrices for Russia's Far East ESPO Blend crude oil loading from the port of Kozmino in October have firmed to a premium of more than 50 cents against ICE Brent on a delivery basis in Chinese ports, several traders familiar with the matter said.

This means the price has climbed back to levels seen prior to sanctions and a price cap on Russian oil, they added.

ESPO Blend ESPO-DUB crude oil, Russia's flagship grade in Asian market loading from the Kozmino port, used to trade at a premium to both the Brent and Dubai benchmarks as its quality and close loading point made it very popular among refiners in China.

However, in Spring 2022 prices for ESPO Blend collapsed as many companies started to abandon Russian oil amid its military actions in Ukraine, which Moscow calls a special military operation, while a price cap and EU embargo on Russian oil imports sent discounts for ESPO Blend even wider.

Nevertheless, ESPO Blend has been trading above the $60 per barrel price cap for most of 2023, Reuters calculations show.

High demand for fuel in Asia has been driving China’s intake of crude oil, including ESPO Blend, which is much cheaper than Middle Eastern and West African alternatives, despite the firming of the price.

At least three deals for October-loading cargoes of ESPO Blend were done at a premium to ICE Brent of 30 to 60 cents per barrel, compared with a discount of $1-2 per barrel for cargoes loading early in September and August, the traders said.

Prior to 2022, the ESPO Blend crude oil price was traditionally set at the port of loading, Kozmino, and against the Dubai benchmark. Current prices in Chinese ports mean the discount on free on board (FOB) Kozmino basis to Dubai is just a couple of dollars per barrel, which is close to prices achieved during pre-sanction times, traders said.

"Now ESPO price is close to what it was when the market was weak, but still it is an old market," one of the traders said.

China remains the main buyer of ESPO Blend oil cargoes loaded from the sea port, while India has also been taking some four-six cargoes per month recently, the traders said.

One added that China's state oil refiners' demand for October-loading ESPO Blend was high and their share may account for more than a half of the market.

Russia’s pipeline monopoly Transneft said this week that ESPO Blend crude oil loadings from Kozmino are expected to rise in 2023, compared to last year, without disclosing details.

ESPO Blend oil exports are very profitable for Russian oil companies that benefit from Transneft's discounted tariff for eastern exports and higher market prices compared to Urals.

The U.S. Treasury published a warning to U.S. companies in April of possible evasion of the Russian petroleum price cap of crude oil exported through Russia's Eastern Siberia Pacific Ocean (ESPO) pipeline and ports in eastern Russia.

(Reporting by Muyu Xu and Moscow ; Editing by Alexander Smith)