Chinese state-owned refineries began buying their November and December cargoes one or two months before their usual shipping dates, pushing the price of Russian ESPO crude shipped to China above $120 a barrel this week.
Increased purchases drove ESPO’s premium over the ICE Brent benchmark to a record level. The gap between the two crude grades reached $20 to $30 a barrel.
ESPO supply and the Middle East impact
ESPO is a light, low-sulfur Siberian crude exported from Russia’s Kozmino port in the Far East. China also imports crude grades produced mainly in the Arctic region and on Sakhalin.
The rise in ESPO’s premium came as oil supplies in the Middle East were disrupted. Concerns over oil flows in the region grew as Iran and groups linked to Iran continued retaliating against U.S. attacks and economic pressure policies.
Saudi Arabia closes a critical route
Saudi Arabia announced that militants in Iraq had carried out a drone attack on a facility used as an export route. After the announcement, the country closed a critical oil pipeline last week that had been used as an alternative export route to mitigate the effects of the effective closure of the Strait of Hormuz.
The rise in ESPO came after increases recorded in March and April in Urals crude, one of Russia’s main export grades. The closure of the Strait of Hormuz during the spring following the first U.S. and Israeli attacks on Iran pushed global buyers toward alternative oil supplies, and the price of Urals rose above $110 a barrel.
Alternative routes lowered prices in the summer
The introduction of alternative shipping routes during the summer and the reduction of domestic stocks by Chinese refineries led to a decline in oil prices. Damage to infrastructure in Saudi Arabia and the reduction in global oil inventories then pushed physical oil premiums higher again.
The price of Russian Urals crude delivered to China and India rose to $110–$120 a barrel last week. Revenue from Russia’s weekly seaborne oil exports also increased to $2.42 billion, reaching its highest level since the end of May.
