Russia’s Discounted Crude No Longer Worth the Risk for Chinese Buyers

The deep discounts on Russian oil, once a boon for Chinese refiners, are no longer seen as worth the risk. A new round of Western sanctions has successfully spooked China’s oil industry, with both state-owned and private refiners canceling Russian cargoes.
The nation’s largest players, Sinopec and PetroChina, are leading the retreat. Their hesitation follows US sanctions on Russian energy majors Rosneft and Lukoil. The message was amplified when the UK and EU blacklisted a Chinese buyer, Shandong Yulong Petrochemical Co., demonstrating a willingness to punish customers.
This move has terrified the “teapot” refiners, the smaller independents who are now shunning Russian crude to avoid a similar fate. This “buyers’ strike” has had a direct impact, causing prices for Russia’s ESPO grade to plummet and jeopardizing 400,000 barrels of oil per day, according to Rystad Energy.
This represents a major blow to Russia, which had pivoted to Asia and made China its number one customer following the Ukraine invasion. The US and its allies are now systematically dismantling that trade by targeting all participants, aiming to cut off Moscow’s war funding.
As China, the world’s top crude importer, steps back, other suppliers like the US stand to benefit. The situation is complex, however. The blacklisted Yulong is now increasing its Russian oil purchases, as it has few other options. Meanwhile, other teapots are also facing a shortage of import quotas, further limiting their ability to buy.