Spot premiums for Russia’s ESPO crude blend, sourced from the Far East, have surged to their highest level against ICE Brent since the start of the Ukraine war in 2022. This increase is driven by stronger winter demand from China and rising prices for Iranian crude, according to anonymous trading sources who spoke to Reuters.
Cargoes of ESPO crude scheduled for January are now trading at a premium of $1.30 to $1.50 per barrel over ICE Brent on a delivered ex-ship (DES) China basis. This marks a notable rise compared to the $1 per barrel premium for December and November cargoes.
These premiums are the highest since early 2022, when the conflict in Ukraine began, based on data compiled by Reuters. The recent price hike is largely attributed to increased demand from Chinese refiners, who prefer ESPO crude for producing winter-grade diesel.
In addition, China’s decision to grant extra crude import quotas to independent refiners, also known as “teapots,” has further boosted demand for ESPO. Last month, Chinese authorities allocated an additional 116,800 barrels per day (bpd) in crude import quotas, which could help offset weaker oil imports and consumption by the end of the year.
Another factor supporting higher ESPO prices is the rising cost of Iranian crude for Chinese refiners. In recent weeks, the price of Iranian oil has climbed, adding to the upward pressure on ESPO premiums.
Private Chinese refiners, who typically purchase most of Iran’s crude, have been seeking supplies from West Africa and the Middle East as Iranian shipments dwindled due to higher prices and geopolitical concerns. Iran’s crude exports to China are now priced at the smallest discount to Brent in five years, with October loadings falling sharply due to fears that Israeli strikes could target Iran’s energy facilities following an Iranian missile attack on Israel on October 1.
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