Prices for Russian Urals have reached the highest levels since a Western price cap took effect as Chinese refiners sought relatively cheap feedstock and the restrictions on Russian oil drove a global shortage of sour crude, four traders said.

Urals cargoes for delivery to Chinese ports late in June and in July were estimated at minus $7.5-8 per barrel to ICE Brent, traders said, some $2 per barrel firmer than the previous month’s estimates and the highest level seen since December 2022, Reuters data showed.

The Group of Seven countries (G7), including the United States, and the EU have imposed a price cap on Russian shipments of crude oil since Dec. 5 as part of sanctions on Russia, while EU states also imposed an embargo on Russian oil seaborne imports.

A trader on the European oil market, who spoke on condition of anonymity, said there was a shortage of sour, or high sulphur, crude because EU buyers cannot buy Urals and supply of another sour grade from the Kurdistan region of Iraq has been disrupted following a legal dispute.

Russian Urals oil prices fell to historical lows last year after the start of the Russian invasion of Ukraine, which Moscow calls “special military operation”, and have remained well below levels in 2021 and earlier, even taking account of the current rally, Reuters data shows.

Chinese buyers increased purchases of Urals oil cargoes to take advantage of the grade that is much cheaper in comparison to medium-sour alternatives, traders said.

Falling refining margins added to Chinese buyers’ appetite for affordable Russian crude.

Refining margins at China’s state-owned refiners are assessed at 430 yuan a tonne in mid-May, down from 982 yuan a tonne three months ago, according to energy consultancy Longzhong.

Shiptracking firm Vortexa data showed Urals accounted for about 37.4% of China’s total Russian crude imports, up from 27.5% in March and about 8% in Feb.

The other Russian oil grade favoured by Chinese refiners, ESPO Blend, traded at minus $6 per barrel to ICE Brent for July arrival on DES (delivered ex ship) basis in China, little changed from estimates for the previous trading cycle, traders said.

U.S. agency the Office of Foreign Assets Control (OFAC) in April issued a note saying it was “aware of reports that ESPO …may be trading above the $60 price cap”.
Source: Reuters (By Muyu Xu in Singapore and Reuters reporters in Moscow; editing by Barbara Lewis)