Urgent: Russia Offers Discounted Urals Crude to China Amid Tensions

UPDATE: In a significant shift in the global oil market, Russia is now offering its flagship Urals crude to Chinese buyers at sharply discounted prices. This move comes as U.S. President Donald Trump intensifies trade tensions with India over its Russian oil imports, potentially altering the dynamics of crude supply in Asia.

As of October 2023, Urals shipments are being promoted to Chinese refiners at prices as low as $1.50 per barrel below London’s Brent, a notable drop from nearly $2.50 just last week. This reduced pricing is attracting interest from both state and private Chinese refiners, who are currently engaged in negotiations for these cargoes, according to traders familiar with the developments.

The urgency of these negotiations is heightened as India pulls back from purchasing Russian oil in response to U.S. tariffs, effectively freeing up some volumes that may now flow into China. On August 7, analysts from Energy Aspects revealed that while India has significantly reduced its spot purchases of Russian crude, some Chinese refiners have already secured Urals cargoes for October delivery.

China stands as the leading global buyer of Russian oil transported by both sea and land, yet local refiners typically favor ESPO crude, which is sourced from the eastern part of Russia. The geographical distance and high freight costs make Urals less appealing, but this new offering could change that landscape, particularly as China’s refining capacity remains vast and its strategic petroleum reserves (SPR) appetite continues to grow.

Despite this opportunity, analysts caution that the ongoing trade tensions between the U.S. and China may complicate matters. Treasury Secretary Scott Bessent hinted that the U.S. could impose tariffs on Chinese imports that include Russian energy, which may deter Chinese state-owned enterprises from increasing their Russian crude purchases.

Historically, Urals has not been a base-load grade for Chinese state-owned refineries, limiting their interest in stockpiling this crude strategically. As of now, the market is closely watching purchases by private refiners, known as “teapots,” and state-owned companies that may seek to procure Urals for their processors and SPR.

In a rare instance last month, Shandong Yulong Petrochemical Co. made a notable purchase of Urals, signaling potential shifts in market behavior. However, analysts warn that while some Chinese refineries are picking up Urals shipments, the country may struggle to absorb all of the Russian barrels that India is now avoiding.

As this situation develops, traders and industry experts will be closely monitoring further purchases and the implications for the global oil market. The evolving dynamics between Russia, China, and the U.S. are likely to have lasting effects on crude pricing and supply chains, making this a critical moment to watch.

Stay tuned for more updates on this urgent situation as it unfolds.