Premiums for Russian ESPO Blend oil weaken on poor Chinese refining margins
Spot premiums for Russia's Far East ESPO Blend crude oil for delivery to China at the end of June and in July have eased due to weak Chinese refining margins and slow demand, four trading sources told Reuters.
The decline in prices for ESPO Blend in China comes on the back of softening premiums for Russian Urals oil in India, sources said. China and India represent the two biggest markets for Moscow, and the price moves are capping its revenues.
ESPO Blend cargoes scheduled for end-June and July delivery traded at $4 to $5 per barrel above ICE Brent on a delivered basis into Chinese ports, compared with premiums of about $6 to $7 per barrel for end-May and June supply, the sources said.
"Weaker demand for Russian oil in India also cooled the ESPO oil market in China," one of the sources said, as the two major markets influence each other.
Recent strong global demand for crude oil, including Russian output, due to the Iran war's disruption of Middle East supplies has eased as high oil prices dampened refining margins, sources said.
Refiners in Asia deepened run cuts in April and May, pushing prices in the physical oil market down.
Some independent refiners in China's eastern province of Shandong are cutting fuel output after the Iran war drove up crude costs, media reported earlier this week.
One of the sources said a number of plants were shut already for maintenance and that was deflating demand for Russian oil.
Two of the sources, however, added that despite the lower premiums, ESPO prices remain much firmer compared to pre-Iran war levels and it was unlikely premiums would turn into discounts any time soon.
Fading prospects for a quick end to the conflict continue to support Russian oil prices, and, even in the case of a resolution, the market will need time to rebalance, traders said.
One trader added that the decline in Iranian and Venezuelan oil supplies to China should also support prices for Russian oil.
The availability of ESPO Blend oil, meanwhile, remains relatively high, with exports staying above 1 MMbpd.
Russia plans to increase ESPO Blend oil loadings from its Kozmino port to 4.3 MM metric tons (1.04 MMbpd) in May from 4.1 MM tons in April.
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