Strong China demand pushes Russian ESPO crude oil premiums to 4-yr high
Spot premiums for Russia’s ESPO Blend crude oil have hit their highest in more than four years, buoyed by a jump in Chinese demand, multiple trade sources said on Thursday, Reuters reports.
Producers Surgutneftegaz and Gazprom Neft have sold three cargoes loading in the first week of November at premiums of $5 to $6 a barrel to Dubai quotes, the sources said, up to $2 higher than deals the month before.
The premiums are the highest since 2014 and have overtaken those for better-quality Russian grade Sokol, according to the sources and Reuters data.
The companies could not immediately be reached for comment.
“It’s quite unusual for ESPO to trade higher than Sokol as it has a higher sulfur content ... than Sokol,” said a China-based trader.
China’s crude demand, which is usually strong ahead of the peak winter season, has been stoked further as some Chinese independent refiners, known as teapots, are snapping up cargoes to use up import quotas by year-end, the sources said.
“They want to receive the crude by end-December for customs records and for winter demand,” one of the sources said, adding that Chinese buyers also typically pile up stocks ahead of Lunar New Year, which falls in February in 2019.
Demand for Russian and Middle Eastern crude priced off Dubai quotes has also been strong this month because of a wider price gap between the Middle East benchmark and Brent, while the upcoming U.S. sanctions on Iran have reduced Iranian oil exports to Asia, traders said.
The average spot premium for November-loading Oman crude, another popular grade among Chinese buyers, has almost tripled from the previous month to about $1.90 a barrel above Dubai quotes, according to Reuters calculations.
For ESPO, Surgutneftega on Tuesday sold a cargo for loading on Oct. 31-Nov. 5 at a premium of about $4.90 a barrel to Dubai quotes, the sources said, declining to be identified as they were not authorised to speak with media.
On Wednesday, Gazprom Neft sold a cargo at $5.40-$5.50 a barrel above Dubai quotes, while Surgutneftegaz sold a second cargo loading on Nov. 3-8 at a premium close to $6 a barrel, the sources said.
The strong premiums took some traders by surprise and they said they doubted the trend would last as Chinese buyers are likely to seek other supplies as their profit margins get squeezed by high feedstock costs.
“It certainly eats into margins badly,” said a Chinese crude buyer.