China’s independent refineries are starting to buy Russian oil at high discounts

China’s independent refineries have discreetly bought Russian oil at high discounts as Western countries suspend their own purchases and explore potential embargoes due to the war in Ukraine.

An official at a Shandong-based independent refinery said it had not publicly reported on agreements with Russian oil suppliers since the start of the Ukraine war, to avoid attracting control and being hit by US sanctions.

The official added that the refinery had taken over some of the purchase quota for Russian crude oil from state-owned commodity trading companies, which are seen to represent Beijing and have mostly refused to sign new supply contracts.

Many Western companies are sanctioning themselves or struggling to secure the insurance, freight or financing needed to buy Russia’s commodity exports, raising expectations that energy-hungry China will step in and buy the unsold barrels.

Purchases from China’s independent refineries reveal how some importers are bypassing traditional routes to gain access to cheap Russian oil, helping Beijing maintain a low profile as the West floods Moscow with sanctions.

The United States and Britain have banned Russian oil, and the EU is in discussions about an embargo and the imposition of restrictions. From 15 May, EU-Switzerland-based commodity traders will not be able to sell Rosneft barrels elsewhere in the world.

Shutdowns in China, logistical and economic challenges caused by sanctions against Russia and the risk of provoking the United States to impose secondary sanctions have dampened the appetite of state-owned Chinese refineries for any significant increase in Russian crude oil purchases.

But shipping activity points to a modest increase in Chinese procurement. Ship brokers and operators say that at least six supertankers – each capable of transporting up to 2 million. barrels of crude oil – has entered into agreements to consolidate loads of Russian Ural crude oil in Europe to ship to Asia, mostly to China, but also India. Some of the Ural barrels may be of Kazakh origin.

Greek-owned Nissos Rhenia and Julius Caesar, Vitol-managed Searacer, Elandra Denali and Elandra Everest, Trafigura charter Baltic Sunrise and Indonesia’s Pertamina Prime are among those loaded with Russian crude oil through ship-to-ship transfers in Europe. Ship brokers say other agreements may have been arranged privately.

Brian Gallagher, head of investor relations at the Belgian tanker group Euronav, said the consolidation of Russian oil on larger ships for transport to Asia was “unusual”. But when the Urals were reduced by 35 USD per. barrel relative to Brent crude oil, he added, adding that Chinese refineries were motivated to buy.

Referring to a decline in oil demand caused by the lockdown, Gallagher said “they do not need it now, but they can store it and shipping provides a mechanism that is flexible”.

The primary place in Europe for transferring Russian oil from medium-sized Suezmax or Aframax vessels to very large crude oil tankers (VLCCs), tankers so large that they cannot load in the Baltic Sea, is near the Skaw Peninsula in northern Denmark. Ships have also transferred oil cargo in Rotterdam and the Mediterranean.

“We are no doubt seeing a big jump in the amount of crude oil from the Urals moving east on VLCCs since the invasion,” said Henry Curra, global research director at Braemar Shipping Services, a London-listed ship broker.

Chinese refineries prefer Russia’s ESPO quality of crude oil produced in eastern Siberia, which enters via pipelines and ships loading at Kozmino near Vladivostok. The number of Aframax medium-sized ships expected to load oil from Kozmino has risen from an average of six a week last year to seven since the outbreak of the war, according to Gibsons, another ship broker.

China’s purchases of Russian crude oil and oil products are about 86,000 barrels a day higher this month than they were on average last year, according to Kpler, a commodity data analysis firm.

Analysts said this marginal increase in Chinese procurement could indicate that it may prove more difficult to find alternative buyers for Russian crude oil and oil products than Moscow had expected.

“It’s a natural assumption to think that China would buy more Russian crude oil, but China comes under far more control than India,” said Jane Xie, senior oil analyst at Kpler.

The official at the Shandong refinery said it was cautious when buying Russian supplies because the potential imposition of US secondary sanctions on third-country entities doing business with Russia could lead to the closure of its Singaporean trading arm.