Chinese State Buyers Step Back From Russian Oil on Sanctions

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(Bloomberg) — Chinese state-owned companies including Sinopec canceled some purchases of seaborne Russian crude after the US blacklisted Rosneft PJSC and Lukoil PJSC, adding to signs of disruption in the oil market.

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The majors have begun to assess the curbs, as well as similar moves by the EU, according to people with knowledge of the situation, asking not to be identified discussing sensitive issues. The companies halted purchases of some spot cargoes, mostly ESPO, a grade from Russia’s Far East, they said.

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The global oil market has been jolted this week by the wave of US sanctions, which have targeted Russia’s two largest producers and are intended to raise the pressure against Moscow to end the war in Ukraine. Prices spiked on Thursday after the Trump administration’s package was announced, and Brent futures are on course for a weekly gain of more than 7%.

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China Petroleum & Chemical Corp., as Sinopec is formally known, as well as China Zhenhua Oil Co. and Sinochem Group didn’t immediately reply to requests for comment. On Thursday, Beijing pushed back against the US move, with a Foreign Ministry spokesperson saying that “China consistently opposes unilateral sanctions that lack a basis in international law.” 

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US President Donald Trump plans to raise Chinese buying of Russian oil with his counterpart Xi Jinping at a meeting in South Korea next week. The summit will hand the leaders of the two largest economies an opportunity to make progress toward a broader trade deal after a period of strained relations.

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State-owned Chinese buyers account for more than 400,000 barrels-a-day of Russian seaborne oil shipments, up to 40% the overall volume that arrives on vessels, according to Kpler Ltd. Russia also delivers crude to China overland through pipelines.

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“Flows to China are set to fall,” said Michal Meidan, director of the China Energy Research program at the Oxford Institute for Energy Studies. Still, the pipeline flows look set to continue given that the payments are based on a loan scheme that doesn’t seem to go via western banks, she said.

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In addition to China, Russian flows to India, another key buyer, are expected to plunge following the US penalties. The sanctions mark a big shift in Western policy, which previously sought to limit revenue for the Kremlin with a price cap designed to prevent a supply disruptions and price spikes.

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The Chinese state-owned companies could seek cheap alternatives, cut runs, or start unplanned maintenance as grades from the Middle East and West Africa become more pricey, with Indian users also seeking replacements for Russian barrels, the people said.

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Brent futures — the global benchmark — traded just below $66 a barrel on Friday. While they have surged this week, prices are still down about 12% this year amid concern that rising supplies from OPEC+ — a broad producers’ alliance that includes Russia — will contribute to a global surplus.