Russian ESPO crude premiums continue slump as Chinese buying wanes

Quantum Commodity Intelligence – Premiums for Russia's ESPO crude oil have continued the summer-long downwards trend this week, amid the continued slump in Chinese spot demand, with cargoes awarded via tender at the lowest levels since the second quarter.

Russia's Surgutneftegas sold three late-September/early-October ESPO cargoes in the range of +$1.90 to +$2.20/b versus Dubai swaps, well down from last month when September cargoes were fetching around Dubai swaps +$2.80/b, and early summer premiums of over $3.50/b.

Levels were last lower for ESPO in May of this year. 

ESPO is a favoured grade of Chinese refiners, valued for its distillate yield and also its geographical proximity to China - loading from the Pacific port of Kozmino.

A clampdown on independent refiners by the Chinese government had largely sidelined a number of spot buyers, amid a scarcity of crude import quotas for the second half of the year, but the zero-Covid restrictions across China have further sapped demand.

The latest data showed that refining throughputs in China have already dropped 6% on average, but most independent refiners reported steeper falls.

Most of the ESPO premium is built into the underlying Dubai structure, which remains firm on the front end with the October/November spread close to +$1.50/b, according to Quantum data, although the backwardation narrows significantly after that.

ESPO prices on a month-loading basis FOB Kozmino, so October-loading barrels are measured as a differential against Dubai assessments for December-loading crude.

But on a like-for-like basis, ESPO has largely lost its premium over Middle East medium sour grades such as Oman and Upper Zakum.

Buyers for ESPO on the latest tender were said to include trading houses Vitol and Mercuria.

Surgut has also offered five more ESPO cargoes for October loading.