Chinese refiners are paying for Russian crude oil using cash transfers to maintain imports from Russia's Fast East, as banks shy away from financing the oil because of sanctions, said Hydrocarbonprocessing.
Global oil prices have soared to their highest in a decade as banks halted financing Russian oil after the U.S. and other countries ramped up sanctions on Moscow following its invasion of Ukraine. Spot crude premiums and freight rates also spiked, piling on buyers' costs. Several European and U.S. refiners have stopped buying Russian oil this week, even though Washington said Russian oil and gas are exempted from sanctions.
But Chinese buyers are looking to maintain purchases of ESPO Blend crude exported from Russia's Far East Kozmino port using other payment methods as they cannot secure letters of credit from banks, trade sources said. "For those done deals, payments are being sorted out with buyers doing Telegraphic Transfer as bank financing becomes very difficult," said a Singapore-based Chinese trading executive.
Telegraphic transfer, equivalent to cash pre-payment, requires buyers to transfer funds to sellers up front, a challenge for some cash-strapped independent refiners with each Aframax tanker-sized cargo now costing more than $85 MM, the sources said. Some sellers are providing open credit, but this raises their risk exposure. Sources said the cash settlements still need to go through the SWIFT messaging system to Russian banks which are not on the U.S. sanction list, said two trading executives with knowledge of the situation.
ESPO blend is popular among China's independent refiners because of its short voyage time from Russia, availability on a spot basis, and good fuel yield. Russia is the world's No. 2 crude exporter, with exports reaching 7.8 MMbpd in December, the International Energy Agency said.
Last year China imported 575,000 bpd of ESPO shipped by tankers, some 6% of total Chinese crude oil imports, with the majority processed by independent refiners, according to tanker tracker Vortexa Analytics.
State refining major Sinopec is a key buyer and trader of seaborne ESPO. Sinopec's trading vehicle Unipec, which rivals Vitol as the world's top oil trader, typically has large open credit lines with suppliers that allow the major to pay a month after a shipment is loaded.
Unipec has bought as many as eight ESPO cargoes for April loading, traders said. Sinopec did not immediately comment on how the firm pays for its purchases. One independent refiner who buys ESPO crude said the company can only use telegraphic transfer (TT) to pay for the oil, and that financing costs are now high because oil prices have surged and there is no longer a credit period for repayment.
As per MRC, U.S. President Joe Biden was expected to announce a ban on Russian oil and other energy imports on Tuesday in retaliation for the invasion of Ukraine. The White House said Biden was scheduled to announce actions at 10:45 a.m. (1545 GMT) on Tuesday against Russia over Ukraine, but did not specifically mention oil imports. Oil prices jumped on the news, with Benchmark Brent crude LCOc1 for May climbing by 5.4% to USD129.91 a bbl by 1345 GMT.
mrchub.com