The move by the world"s biggest oil importer comes amonth after it initially cut back on Russian supplies, for fear of appearing toopenly support Moscow and potentially expose its state oil giants to sanctions.
China"s seaborne Russian oil imports will jump to anear-record 1.1 million barrels per day (bpd) in May, up from 750,000 bpd inthe first quarter and 800,000 bpd in 2021, according to an estimate by VortexaAnalytics.
Unipec, the trading arm of Asia"s top refiner SinopecCorp, is leading the purchases, along with Zhenhua Oil, a unit of China"sdefence conglomerate Norinco, according to shipping data, a shipbroker reportseen by Reuters and five traders. Livna Shipping Ltd, a Hong Kong-registeredfirm, has also recently emerged as a major shipper of Russian oil into China,the traders said.
Sinopec declined comment. Zhenhua and Livna did notrespond to requests for comment.
The firms are filling the hole left by western buyersafter Russia"s invasion of Ukraine, which Russia calls a "special militaryoperation."
The United States, Britain and some other key oilbuyers banned imports of Russian oil shortly after the invasion. The EuropeanUnion is finalizing a further round of sanctions, including a ban on Russianoil purchases. Many European refiners have already stopped buying from Russiafor fear of running afoul of sanctions or drawing negative publicity.
Vitol and Trafigura, two of the world"s biggestcommodity traders, phased out purchases from Rosneft, Russia"s biggest oilproducer, ahead of an EU rule that came into effect on May 15 barring purchasesunless "strictly necessary" to secure the EU"s energy needs.
"The situation began taking a drastic turn afterthe exit of Vitol and Trafigura that created a vacuum, which could only befilled by companies that can provide value and are trusted by their Russiancounterparts," one Chinese trader, who asked not to be named, toldReuters.
The low price of Russia"s oil – spot differentials areabout $29 less per barrel compared with before the invasion, according totraders - is a boon for China"s refiners as they face shrinking margins in aslowing economy. The price is well below competing barrels from the MiddleEast, Africa, Europe and the United States.
China separately receives some 800,000 bpd of Russianoil via pipelines under government deals. That would bring May imports tonearly 2 million bpd, 15% of China"s overall demand. For Russia, oil sales arehelping to cushion the blow to its economy from sanctions.
STATE BUYERS
State-owned Chinese companies, led by Sinopec andZhenhua, are set to buy two thirds of Russia"s flagship Far Eastern exportgrade ESPO (Eastern Siberia–Pacific Ocean oil pipeline) blend in May, up from athird before the invasion of Ukraine, traders who closely monitor the flowstold Reuters. Russia exported about 24 million barrels in May, 6% higher thanApril.
Sinopec alone is likely to buy at least 10 ESPOshipments in May, doubling its volume before the invasion, with some of thetrades hitting a record discount of $20 a barrel below benchmark Dubai crude onFOB Kozmino basis, three of the traders said.
Sinopec, Zhenhua and Livna are moving more oil fromboth Russia"s Baltic Sea ports in northwestern Europe and its Far East exporthub Kozmino.
Zhenhua, the smallest state-owned Chinese oil trader,has chartered ships to move Russian oil, according to shipping data and traderswith knowledge of the matter. North Petroleum International Co, a unit ofZhenhua, loaded two ESPO shipments in early May, and another two cargoes ofUrals from Baltic Sea port Ust-Luga in late April and mid-May, according todata from Refinitiv and Vortexa, a shipbroker report and traders.
Norinco, one of the world"s largest defencecontractors, branched into oil more than two decades ago, winning a concessionto produce oil in Iraq in the 1990s. Its trading vehicle Zhenhua recentlyexpanded into gas terminal investment and trading. Read full story
Zhenhua has bought some of its supply of Russian oilvia Switzerland-based Paramount Energy, a trader specializing in marketing oilfrom independent Russian and Kazakhstan producers to mostly private end-users,said two traders with knowledge of the matter.
A regular marketer of ESPO to China"s independent refinerssince 2016, Paramount Energy expanded its China business by boosting sales toZhenhua after it set up a Beijing office in 2020, said the trading executives.
In response to Reuters" questions, Paramount Energydid not address trades made after Russia"s invasion of Ukraine. It said it"has customers in China for ESPO crude cargoes delivered under long-termcontracts established well before Feb. 24," the date of the invasion."This crude is supplied exclusively by independent oil producers andnon-state companies, as has long been our policy."
Livna, which has not previously been a major player intaking Russian oil to Asia, has since late April loaded over 7 million barrelsof Russian Urals and ESPO crude bound for China, according to ship-trackingdata from Vortexa and Refinitiv.
Previously a regular shipper of Russia"sEurope-focused export-grade Urals within Europe, Livna started sending Russianoil to Shandong province, China"s independent refiners" hub, in early 2020,according to shipping data.
So far in May, Livna has loaded eight cargoes, ornearly 6 million barrels of ESPO oil, destined for China, up from one or twocargoes each month earlier in this year, shipping data showed. Livna alsoloaded at least two Urals shipments from Baltic ports in May for delivery toChina, traders told Reuters.
The withdrawal of western traders has also attractednew player Shandong Port International Trade Group, a provincialgovernment-backed trader to the business, traders told Reuters.
