Chinese state oil companies are pulling back from buying Russian oil this month. Two major importers have stopped purchases entirely, while others are buying less. This change comes as they look into compliance issues following recent U.S. sanctions against Russian oil producers.
The sanctions, imposed on January 10 by the Biden administration, target companies like Gazprom Neft and Surgutneftegaz, along with insurers and many vessels. These measures aim to reduce Russia’s oil revenue amid its ongoing conflict in Ukraine. Although Russian oil shipments to India and China had bounced back previously, the latest sanctions have caused significant hesitation among Chinese buyers.
Sinopec and Zhenhua Oil, two of China’s state-run companies, have halted their purchases of Russian oil for March. They are concerned about the implications of dealing with the newly sanctioned firms. A source from a Beijing-based company mentioned that they are pausing deals to ensure compliance and to wait for clarity on potential negotiations between Russia and the U.S. regarding the Ukraine situation. If the U.S. eases or lifts the sanctions, they might resume their purchases.
Surgutneftegaz and Gazprom Neft account for a substantial portion of Russia’s oil exports to China, shipping about 1.2 million metric tons monthly. The reluctance of Chinese firms to engage with these suppliers is putting additional pressure on Russia’s oil prices, which is significant for Moscow’s economy.
Independent refiners have stepped in to fill the gap left by state companies, helping to maintain some price stability for Russia’s ESPO blend oil, which is currently trading at a premium to Brent crude. Despite the sanctions, China remains a crucial market for Russian oil, importing around 1.3 million barrels per day.
PetroChina, another major player in the market, is still buying Russian oil but at reduced volumes. CNOOC, which also regularly trades in Russian oil, has similarly cut back on its purchases for March. However, PetroChina continues to import significant amounts of Russian oil through pipelines under a long-term agreement.
In response to the reduced Russian imports, Sinopec has started sourcing oil from other regions, including West Africa, the Middle East, and Brazil. This shift highlights the ongoing adjustments in the global oil market as companies navigate the impact of sanctions and geopolitical tensions.