China’s state-controlled refining giants, Sinopec and PetroChina Co., are leading an exodus from the Russian oil market. The companies are reportedly canceling cargoes of Russian crude, signaling a significant shift in trade dynamics. This move is a direct consequence of new US sanctions targeting Russian energy champions Rosneft PJSC and Lukoil PJSC.
The caution from the state-owned giants has been mirrored by the private sector. China’s “teapot” refiners are also halting purchases, unnerved by recent penalties against one of their own. The blacklisting of Shandong Yulong Petrochemical Co. by the UK and EU has been interpreted as a clear warning against dealing in Russian oil.
This sudden freeze from Chinese buyers has had a dramatic effect on the market. Prices for Russian crudes like the ESPO grade have plummeted. Rystad Energy AS estimates that the buyers’ strike has taken 400,000 barrels a day off the market, a volume that constitutes up to 45% of China’s Russian oil imports.
Russia’s status as China’s number one supplier, built on discounted oil prices after the Ukraine invasion, is now in jeopardy. The US and its allies are escalating their campaign to cut off Moscow’s oil revenues, a key source of funding for its ongoing war.
As China, the world’s top crude importer, shuns Russian barrels, it will need to find alternative sources. The US, following a recent trade truce between Donald Trump and Xi Jinping, could emerge as a key beneficiary. This complex situation is further muddled by the fact that the blacklisted Yulong is now increasing its Russian purchases, while other teapots are simultaneously running out of import quotas.