Russian ESPO crude premiums tumble on weak Chinese spot demand

Quantum Commodity Intelligence – Premiums for Russia's ESPO have retreated sharply this month on a combination of scant spot demand from China and a weaker Dubai market structure, according to trade and price data.

Russia's Surgutneftegas has sold three September-loading ESPO cargoes in the range of +$2.75 to +$2.85/b versus Dubai swaps, well down from last month when August cargoes were fetching around Dubai swaps +$3.50/b.

A clampdown on independent refiners by the Chinese government has largely sidelined a number of spot buyers, amid a scarcity of crude import quotas for the second half of the 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.

In theory, the so-called teapots can still buy ESPO but they need to choose wisely amid a dearth of import quotas. Additionally, Beijing has clamped down on Chinese majors reselling cargoes or import quotas to the teapots.

Most of the ESPO premium is built into the underlying Dubai structure, which has softened over the past week.

For instance, the September/November Dubai cash spread has moved from around +$2.65/b last week to +$2.17/b on Wednesday, according to Quantum data, reflecting weaker market sentiment.

In terms of outright pricing, ESPO is fetching a premium of around $0.70/b over its Middle East counterpart, Oman – which when adjusted for the ESPO freight saving gives the Russian grade only a marginal premium.

By contrast, last month ESPO was trading at around $1.50/b over Oman on a like-for-like basis.

Surgut currently has another three ESPO cargoes offered via tender for late-September loading dates, which should further act as a measure of China's appetite for spot crude.