Demand for Russian crude from China, the world’s biggest oil importer, is cooling significantly as refiners fear the sting of Western sanctions. State-owned behemoths like Sinopec and PetroChina Co. are leading the pullback, canceling shipments of Russian oil.
Their caution stems from new US penalties against Moscow’s primary producers, Rosneft and Lukoil. The risk has been further highlighted by the UK and EU blacklisting a Chinese refiner, Shandong Yulong Petrochemical Co. This move has sent a powerful warning to the rest of the market.
Indeed, China’s smaller “teapot” refiners are also holding off, scared of being targeted next. This sudden drop in demand has caused prices for Russian crudes, including the ESPO grade, to plunge. Rystad Energy AS reports the disruption affects 400,000 barrels a day, or up to 45% of China’s Russian imports.
Russia had cemented itself as China’s top supplier by offering its oil at deep discounts after the Ukraine invasion. The US and its allies are now ratcheting up the pressure, targeting Russia’s customers to choke off the revenue stream funding the war.
This retreat from Russian oil may benefit other suppliers, such as the US, especially after a recent trade truce between leaders Trump and Xi. However, the situation is complicated by the fact that many teapots are also running low on import quotas, adding a domestic constraint to their purchasing decisions.