Russian ESPO oil prices at 21-mth high, boosted by strong China demand

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SINGAPORE — China’s rebounding crude demand has pushed up prices of a Russian grade popular with Chinese independent refiners to the highest in 21 months, several trade sources said.

Russia’s Surgutneftegaz sold three cargoes of ESPO crude loading in November at premiums between $4.40 and $4.70 a barrel to Dubai quotes late on Thursday, they said. A Chinese refiner purchased two parcels while a Japanese company bought one, the sources added.

An earlier tender awarded late on Wednesday saw Surgutneftegaz selling three cargoes at premiums from $4.00 to above $4.20 a barrel the sources said. European trader Mercuria may have won the tender, they added.

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These are the highest premiums since January 2020, according to Reuters data, a sharp rebound from last month, when premiums for October-loading cargoes hit their lowest in four months at between $1.80 and $2.20 a barrel.

The surge in ESPO crude’s spot premiums signals strong demand from Chinese independent refiners as they expect Beijing to issue a fourth batch of import quotas. The quotas will have to be used before year-end, one of the sources said.

Limited offers of alternative crude oil grades in the market also helped to support ESPO Blend premiums, traders said. Supply of Brent-linked grades to Asia is being capped by a wide Brent-Dubai spread.

“Demand is healthy and margins are good,” said the source, adding that fresh demand for ESPO crude also came from a new Chinese refiner.

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Jiangsu Eastern Shenghong Co Ltd, which received its first crude import quota of 2 million tonnes this month, is buying ESPO crude in addition to Saudi oil for trial runs at its new refinery, a trading source close to the company said.

The eastern port of Lianyungang, which connects to Shenghong’s 320,000 barrels per day refinery, can only handle Aframax tankers for now, he added.

On Wednesday Gazprom Neft also awarded a tender to sell 100,000 tonnes of ESPO Blend for loading on Nov. 3-13 at a premium of $3.70-3.80 per barrel, traders said.

ESPO crude is typically sold in cargoes of 740,000 barrels and 1 million barrels carried on smaller tankers of the Aframax and Suezmax classes, versus Very Large Crude Carriers that can move 2 million barrels of oil at once.

(Reporting by Florence Tan, Chen Aizhu and Olga Yagova; editing by Jason Neely and Stephen Coates)