…Despite China not joining pro cap nations
From either side of the coin, the consequences of the newly introduced price cap to Russian oil seem to be making fortunes look up for both price cap participating countries and the non-allied nations.
Yesterday, reports say despite the fact China is not part of the pro price cap countries, the country’s independent refiners are delighting from seeing their refining margins jump in recent weeks as they are able to negotiate steeper discounts for their preferred Russian crude grade.
Reuters reported last night that the flow of cheaper Russian crude to China lifted the refining margins of the independent refiners, the so-called teapots, to above $115 (800 Chinese yuan) per ton last week, from less than $86 (600 yuan) at the beginning of December.
Quoting a China-based oil analyst, the global agency said many independent Chinese refiners based in the Shandong province have continued to buy Russian crude and are ignoring the price cap imposed by Western countries.
The price cap on Russian crude imposed by the EU, the G7, and Australia came into effect on December 5, but China hasn’t joined the so-called Price Cap Coalition, which bans maritime transportation services for Russian crude oil unless the oil is sold at or below $60 per barrel.
While China hasn’t joined the Price Cap Coalition, the fact that a price cap now exists gives the world’s top crude oil importer, as well as other buyers of Russian crude like India, more bargaining power to negotiate steep discounts for the Russian crude even outside the price cap mechanism, analysts say.
The report said ESPO, the crude from Russia’s Far East, which is preferred by China’s independent refiners, is being sold above the price cap and estimated at around $65-68 per barrel on a free-on-board basis by trading sources.
Notwithstanding that it is being sold above the price cap, “the price of ESPO being negotiated by Chinese refiners is still at a wide discount to ICE Brent futures for the month of delivery of the cargo, currently February and March,” the report said
The trades with ESPO above the price cap suggest that, for now, Russia has the tankers and insurance firms to provide coverage and shipping for the ESPO grade, which can reach China from Russia’s Far East in less than a week.
By Bosco Agba