Chinese refiners have bought up all crude oil cargoes set to load from Russia’s Far East port of Kozmino in August weeks earlier than usual, traders with knowledge of the market told Bloomberg on Friday, as risks to Middle Eastern supply spiked this week with attacks on tankers in the Red Sea.
China has been snapping up the cargoes at a faster pace, which raised the price of the Russian Far Eastern crude blend ESPO to a discount of just $1 per barrel to the price of ICE Brent, up from a discount of between $3 and $4 per barrel two weeks ago, Bloomberg’s trade sources said.
Two weeks ago, risks to crude oil supply from the Middle East rose again after the ceasefire was shattered by Iranian attacks on vessels in the Strait of Hormuz. The U.S. has since been striking Iranian targets daily, Iran has been firing missiles at U.S. military bases and assets across the Middle East, and the U.S. has reinstated the blockade aimed at stopping Iranian oil exports.
The Strait of Hormuz is once again closed, and the steady flow of tankers that managed to exit the Persian Gulf abruptly ended after just three weeks.
This week, Brent crude oil prices hit $100 per barrel again, as the Strait of Hormuz remains almost entirely paralyzed and the Iran-aligned Houthis in Yemen target tankers in the Bab el-Mandeb Strait in the Red Sea.
As a result, Chinese buyers are wasting no time securing some alternatives to Middle Eastern supply well in advance. They typically wait until the end of the window for next month’s loading for Russia’s ESPO crude, considering that the journey from Kozmino to China’s east coast is only a week long.
But with spiking prices and growing fears that supply from the Middle East is constrained at both key chokepoints, China’s refiners prefer to stock up on Russia’s crude that takes only a week to reach import terminals.
By Tsvetana Paraskova for Oilprice.com
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