Western sanctions on Russian oil have begun to bear fruit as Chinese consumers, including state-owned companies, are cutting back on purchases of Russian oil for December delivery ahead of restrictions due to take effect on December 5. This was reported by Reuters with reference to traders and market participants.
“Of course, there is a lot of fear and a lot of confusion about the upcoming price cap, but people think December cargo should be safe to buy,” a Chinese trader told the agency.
Chinese companies are not eager to take risks and plan to wait some time to understand how the oil cap mechanism will work, as well as assess the possible risks of sanctions and the possible benefits of discounting Russian oil. The agency notes that instead of the usual 30 batches of Russian ESPO oil, Chinese refineries have ordered no more than seven. The reduction in demand immediately led to a reduction in the cost of supply, the agency notes.
“Now everything is under scrutiny. It is difficult to detail the terms agreed upon for this small number of deals,” the Chinese trading executive said.
Amid rising risks, some companies have even abandoned Russian supplies in favor of imports from Brazil and West Africa. Despite the fact that the prices for such supplies were much higher, Chinese companies preferred to play it safe in case of possible interruptions in Russian supplies due to sanctions.
The largest buyers of Russian oil in China are state-owned companies such as Unipec, Zhenhua Oil and Chinaoil. According to the agency, they account for about 85% of total supplies, but even they are thinking about reducing supplies due to possible risks. State-owned companies intend to assess the benefits of a possible discount and possible sanctions in the event of continued cooperation with Russia.
In anticipation of sanctions against Russian oil, oil export revenues fell to their lowest level since the beginning of the year. In the near future, European countries will refuse Russian supplies, while Asian countries are in no hurry to increase supplies due to the upcoming sanctions risks.