Russia’s ESPO Blend oil, a key export, has seen a significant decline in prices, hitting the lowest level in 10 months due to weakening demand from China, its main consumer. For April loading, ESPO Blend cargoes are now trading at a discount of approximately $1.50 per barrel against the ICE Brent benchmark, a notable shift from last March when they commanded a premium of over $2 per barrel. Trade sources report that this decline is largely attributed to a rebound in Russian shipments to China, facilitated by the inclusion of more non-sanctioned tankers in the trade. However, some major Chinese buyers have scaled back their purchases, expressing concerns about potential dealings with sanctioned firms.
Notably, companies like Sinopec and Zhenhua Oil have halted their purchases of Russian oil loading in March, and this trend appears to have continued into April and early May. Amid this uncertainty, some Russian exporters that typically issue tenders ahead of time are holding off on selling May volumes, potentially reflecting the current weak pricing environment. Despite this, independent Chinese refiners are still looking to buy, albeit with strict requirements for “clean” non-sanctioned vessels for ESPO Blend shipments. If a vessel or producer is associated with sanctions, the discount may increase by as much as $1 per barrel.
ESPO Blend remains a favored oil grade among Chinese refineries due to its quality and proximity to ports. Additionally, expectations of increased Russian oil exports during April and May, correlated with seasonal maintenance on Russian refineries, are contributing to the overall price weakness, as lower refinery processing results in greater crude oil availability for export.