Oilfield services rush to raise capital as oil recovery holds China’s independent refiners, the so-called teapots, are importing Russia’s Urals grade with the drop in the Brent/Middle East spreads as OPEC’s cuts have made the Dubai and Oman crudes more expensive.
The increased Chinese imports from Russia could further boost Russia’s position as China’s largest crude oil supplier, after it recently overtook Saudi Arabia to top the ranking.
Russia last year overtook Saudi Arabia as China’s biggest supplier of crude oil thanks in large part to increased demand the teapots.
The average daily amount that Russian companies exported to China in 2016 stood at 1.05 million barrels, up by 25 % from 2015.
Saudi Arabia’s average daily shipments to the world’s 2nd-largest oil consumer were 1.02 million barrels daily in the period, an amount representing a slight 0.9 % uptick on 2015.
Now in early 2017 the drop in the Brent/Middle East crude spreads has opened the arbitrage window for Russia’s Urals – which is priced against the Brent - to head to Asia.
According to Reuters, Shandong Wonfull Petrochemical Group has bought 2 million barrels of the Urals crude grade for delivery this month and in May.
The Urals quality is good; it is also very similar to Oman, and has better refining economics, one source told Reuters.
Since Oman crude has become more expensive with the OPEC cuts, teapots are replacing Oman with Urals, according to traders.
Unlike China’s state oil companies that are bound by long-term contracts with Saudi Arabia, the small refineries are taking advantage of Russia’s exports and the narrow spread between the Brent and the Middle Eastern benchmarks Oman and Dubai.
According to trade sources, Lukoil’s trading unit Litasco would be sending 1 million barrels of Urals crude, part of which it would sell to an independent refiner in China.
In addition, Reuters shipping data show that Litasco and Unipec - the trading unit of Sinopec - are expected to send 2 Suezmax tankers to China, loading from Novorossiysk in the middle of February.