The deep discounts Russia offered to cement itself as China’s top oil supplier are no longer enough to offset the growing fear of Western sanctions. As a result, Chinese refiners are shunning Russian crude, causing prices for grades like ESPO to dive.
The pullback is being led by the biggest players. State-owned giants Sinopec and PetroChina have both canceled Russian cargoes. Their caution follows new US sanctions targeting Russian producers Rosneft and Lukoil. The risk of being associated with these blacklisted entities outweighs the financial benefit of cheap oil.
This fear is even more pronounced among the “teapot” refiners. These smaller, private firms are terrified after one of their own, Shandong Yulong Petrochemical Co., was blacklisted by the UK and EU. This has created a chilling effect, prompting many to halt Russian purchases immediately.
The “buyers’ strike” is significant, estimated by Rystad Energy AS to affect 400,000 barrels a day, or up to 45% of China’s Russian imports. This is a clear success for the US and its allies, who are escalating sanctions to stop the flow of oil money to Moscow’s war effort.
The situation leaves Russia in a dilemma. Its main customer is pulling away, and the world’s biggest importer, China, will now look to other suppliers, perhaps even the US. In a strange twist, the blacklisted Yulong is now buying more Russian oil, as it has no other choice, but most other teapots are constrained by both fear and a separate shortage of import quotas.
