A significant shift in global oil flows is underway as Chinese refiners, fearing sanctions, are shunning Russian crude. This pullback, led by state-owned giants Sinopec and PetroChina, is a direct response to fresh US sanctions on Russian producers Rosneft and Lukoil.
The “buyers’ strike” is substantial. According to Rystad Energy AS, it affects around 400,000 barrels a day, which amounts to nearly half of China’s oil imports from Russia. This has caused prices for Russian grades like ESPO to plummet, reflecting the sudden loss of demand from its most important customer.
This trend is driven by fear. Smaller “teapot” refiners are also holding off, spooked by the blacklisting of a fellow refiner, Shandong Yulong Petrochemical Co., by the UK and EU. This escalation of penalties by the US and its allies is a clear attempt to choke off Moscow’s oil revenues and pressure it to end the war in Ukraine.
As China, the world’s biggest crude importer, steps back from Russia, a void is created in its supply chain. This gap is likely to benefit other major suppliers. Notably, the US could be poised to sell more to Beijing, especially following a recent landmark trade truce agreed upon by leaders Donald Trump and Xi Jinping.
However, the situation remains muddled. The Trump-Xi meeting, while resolving issues like semiconductors and soybeans, made no public mention of Russian oil, leaving refiners in limbo. Furthermore, a shortage of import quotas is also hampering purchases by teapots, adding another layer of complexity to China’s oil procurement strategy.