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SINGAPORE, Feb 3 (Reuters) – China’s independent refineries are blending subsidized Russian barrels to use as a low-cost feedstock amid the lack of government crude import quotas for some of them, according to trade sources and data. Increasing import of fuel oil. ,

Western sanctions over Russia’s invasion of Ukraine, including a February 5 embargo and price limits on refined products, have been pushing Russian fuel oil barrels eastward to Asia since last year at attractive discounts.

These are flooding the ship-to-ship transfer hubs of Fujairah in Malaysia and UAE from the second quarter of 2022. Traders mix these barrels with other oils to re-brand the country of origin of the fuel oil, thereby clearing the way for ship insurance and financing that would otherwise be restricted under sanctions, trade sources said.

Sources said the discounts offered on these fuel oil cargoes help Chinese independent refiners improve margins and replace crude, which some companies are unable to import without quotas. The trade also provides a way to market Russian oil and bring much-needed export income to Moscow.

“We’ve been looking at Russian fuel oil since December. It’s cheaper and doesn’t require (crude) import quotas,” said an executive at an independent refiner in eastern Shandong province.

The refiner has not received any government crude quota for the past year and buys mostly straight-run fuel oil to produce diesel and gasoline, said the executive, who declined to be identified because he was not ready to speak to the media. was not authorized.

These blended fuel oil barrels last traded at a discount of about $5 on the Shandong basis to benchmark crude ICE Brent, a source said.

High-sulfur fuel oil prices relative to crude have been heavily discounted since the second quarter of last year, hitting a record low in late October.

China’s total fuel oil imports rose to nearly 1.76 million tonnes in December, the highest since September 2021, official customs data showed.

The rise was fueled by a jump in shipments from Malaysia to a one-year high of 620,000 tonnes, while monthly imports from the United Arab Emirates rose to 471,000 tonnes, the most in two years.

Meanwhile, direct imports of fuel oil from Russia fell to 187,000 tonnes in December from a peak of 554,000 tonnes in October, while total imports from Russia are expected to more than double year-on-year to 3.1 million tonnes in 2022.

“Offering large discounts is driving the trend as independent refiners are price sensitive. China is still recovering with domestic demand for refined fuels,” said Emeril Jameel, Refinitiv’s senior analyst for crude oil and fuel oil.

“The trend will continue with the EU sanctions (on February 5), closing all natural outlets in Europe. Asia will continue to soak up cheap Russian (fuel oil) barrels on top of crude,” Jamil said.

trading companies

Western trading houses have been the main suppliers of these fuel oil shipments to China, said four senior business sources who track flows closely, adding that the elevated December levels will continue into February and beyond.

He said one of the top suppliers of these barrels to China is Swiss-based trader Vitol.

Over the past four months, the Brilliant Jewel, a floating storage facility chartered by Vitol, conducted ship-to-ship transfer operations with at least six vessels that previously loaded fuel at Russian ports, shipping data on Refinitiv Eikon showed. Reuters analysis showed.

Vitol did not respond to a request for comment.

A second Chinese fuel oil trader said companies have become more lax in dealing with Russian barrels after initial confusion over the Group of Seven price cap and the potential risk of sanctions running out.

“Initially the market took a wait and watch approach before December 5, but now many traders are moving fuel oil from these two hubs, top western traders are more active,” the trader said.

Leading Chinese bunker supplier and trader such as Sinopec (600028.SS) and PetroChina (601857.SS) The sources said Chimbusco is also shipping more Russian high-sulfur fuel oil to bunkering centers in east China’s Zhoushan and Qingdao.

Sinopec and Chimbusco did not respond to requests for comment.

Shipping records show the companies have chartered several fuel oil shipments from Malaysia’s Tanjung Pelepas port to Zhoushan and Hong Kong in the past four months.

Reporting by Chen Aizu and Jesslyn Lerah; Editing by Florence Tan and Tom Hogg

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