By Tsvetana Paraskova of OilPrice.com
After a brief hiatus around the time the EU embargo and the G7 price cap on Russian crude came into force, China’s largest state-held refiners have resumed purchases of Russia’s flagship Urals crude at well below the $60 cap without breaching the sanctions, industry sources told Reuters on Wednesday.
State oil refining giants PetroChina and Sinopec are back on the market for Urals and are buying it at deep discounts via trading companies that handle the payments to Russian oil exporters and arrange the shipping and insurance services, according to Reuters’ sources.
The top state refiners in China are not violating the terms of the price cap mechanism and are not using Western tankers or insurance, either, the sources added.
The state-owned refiners are expected to receive Urals crude from Russia this month, after last importing the blend in November last year, just ahead of the G7 price cap and the EU embargo which came into effect on December 5. While initially wary of how the mechanism will actually work, Chinese state refiners are now back to buying and importing Urals.
Such trades are beneficial for the Chinese refiners as they import crude at much lower prices than on the international markets, raising their profits from processing cheap crude at a time when China’s oil demand is set for a recovery after the end of the zero-Covid policy in the world’s largest crude oil importer. The trade is beneficial for Russia, to an extent, too—Moscow has a new major outlet for Urals, which used to go mostly to the European market prior to the Russian invasion of Ukraine and the Western sanctions on Russia’s crude oil exports.
However, the much cheaper Urals compared to a year ago is reducing Russia’s budget revenues, to which oil is a major contributor.
Due to the low price of Urals in January, Russia’s budget was $24.7 billion (1.76 trillion rubles) into deficit in January, compared to a surplus for January 2022, as state revenues from oil and gas plunged by 46.4% due to the low price of Urals and lower natural gas exports, the Russian Finance Ministry said in preliminary estimates last week.