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Russia's ESPO Blend oil premiums increase above $1/bbl in China on supply worries

Spot premiums for Russia's Far East ESPO Blend petroleum have firmed to more than a $1 per barrel premium as concerns of possible supply interruption from Iran and firmer rates for Abu Dhabi's Murban oil sustained Chinese refiners' demand, trade sources said.

ESPO Blend cargoes loading at the end of November - early December traded at premiums of about $1 per barrel and somewhat higher against ICE Brent on a delivered ex-ship (DES) China basis, the sources informed Reuters, increasing from premiums of $ 0.20-0.50 per barrel for freights loading previously in the exact same month.

The last time ESPO Blend traded at significant premiums to ICE Brent at Chinese ports on a DES basis had to do with a year earlier, Reuters data showed.

ESPO Blend is a popular oil grade with Chinese independent refiners, called teapots, which also purchase big volumes of Iranian oil.

Russian unrefined cycle trades earlier than Iran so some guys are stressed over Iran given the Middle East concerns, one of the sources said. So instead of gamble on Iranian, they may also buy some Russian stuff first.

Another source said ESPO rates were supported by need from brand-new refiner Shandong Yulong Petrochemical and state refiners.

Yulong, China's most current greenfield refinery, started trial perform at among its two unrefined systems last month. The refiner has been actively purchasing ESPO Blend ahead of the plant's start-up.

A third source said ESPO need increased since the alternative Murban crude had gotten more expensive.

Still, the rebound in ESPO costs might be shortlived amidst lacklustre fuel need and poor refining margins in China, another source said.

In June-July, ESPO Blend cargoes were discounted to Brent as Chinese independent refiners cut output.

China's refinery output fell 5.4% versus a year earlier, main information showed on Friday, decreasing for a sixth consecutive month.

(source: Reuters)