India's penchant for Russian ESPO oil could strengthen competition for it with China - experts

MOSCOW. March 7 (Interfax) - Russian ESPO crude, which has become a firm favorite of China's private refiners, is starting to attract buyers in India, which could increase competition between the two largest Asian importers of crude, S&P Global Commodity Insights said in a report.

Although Indian refineries have not announced any recent deals with ESPO, information on the purchase of numerous batches by both private and state-owned refineries in the country has already raised premiums for this grade, the publication said.

Russian Urals crude is the main grade that India usually imports from Russia to replace crude from the Middle East and West Africa.

According to S&P Global's sources and information from ship tracking company Kpler, Indian refineries have purchased a total of seven shipments of Russian ESPO blend with delivery in April.

According to one broker, taking into account the proximity of the Persian Gulf to India where cheaper cargoes can be sent by Aframax tankers, corresponding shipments by such vessels from Kozmino [a port in the Far East, the terminus of East Siberia-Pacific Ocean pipeline system] will be possible only with a big discount to the price cap of $60/bbl. However, oil from Kozmino could become very profitable for Delhi if VLCC (Very Large Crude Carrier) tankers operating in the Far East - Japan and South Korea would accept the ESPO grade for transshipment between ships outside the South Korean oil hub Yosu for delivery to India, he said.

"India has decided to take part in the competition. There is a special fleet that serves only transportation of Russian oil grades, and now there will be a demand for another major destination - India," which will increase competition, since almost all shipments from Kozmino are now carried by Chinese oil refiners, the publication quoted a tanker broker as saying.

ESPO crude oil is mainly shipped from Kozmino by Aframax tankers with the throughput capacity of approximately 100,000 tonnes. According to estimates by S&P Global, Russia steadily exports over 3 million tonnes of ESPO crude per month from Kozmino, with shipments rising to nearly 4 million tonnes in January.

Prior to the military operation, Aframax freight from Kozmino to Northern China cost less than $500,000; since then, it has quadrupled in price to more than $2 million and will increase further, a source said.

Platts estimated the Aframax freight on the Kozmino-North China route on March 6 at $2.1 million from $470,000 the week before the military operation began in February 2022. The trading source outlined the rate from Kozmino to India's east coast at $4 million and to the west coast at $4.5 million.

While India is a new buyer of ESPO crude, rising demand from China is already having a greater impact on premiums for the grade. According to S&P Global, state-owned Unipec recently bought at least 4 shipments of ESPO for April, and Hengli Petrochemical, which had made do with the crude for several years, has also bought 4-5 shipments.

"We will willingly take a certain volume, but we may have to compete with other Sinopec refineries because supply is limited and buyer interest is high," a source at Sinopec's refining unit in southern China said.

Sustained demand has led to ESPO offers with delivery in April for independent Chinese mini-refineries in Shandong at discounts of about $7-7.5 per barrel compared to June ICE Brent futures on a DES (ship-to-ship) basis, compared with the latest deal at a discount of $8.5/barrel, S&P Global said according to sources.