Japanese and South Korean refiners are cautiously monitoring Chinese and Indian traders’ Middle East sour crude demand after fresh sanctions on Russian oil trades, with the broader Asian refining industry fretting over a spike in Persian Gulf prices.
The new and tighter sanctions on the Russian energy sector pose no direct energy security threat to South Korea and Japan as refiners in Asia’s third and fourth biggest crude importers have shunned Russian barrels for the past couple of years. However, the cost of staple Middle Eastern sour crude procurement could soar if all major Asian buyers compete for Persian Gulf medium and heavy sour crudes, according to senior feedstock management sources at four South Korean and Japanese refiners.
Chinese refiners and trading companies are active buyers of Far East Russian ESPO and Indian refiners are regular buyers of Russian Urals crude. “If they face difficulties in securing those Russian barrels, they could bid higher for Persian Gulf cargoes as a near-term replacement, which is not ideal for many [Asian] Middle Eastern sour crude customers,” said a feedstock and logistics manager at Japan’s Cosmo Oil.
Japan purchased 2.191 million b/d of crude from Middle Eastern suppliers in the first 11 months of 2024, making up more than 95% of the country’s total crude imports, the latest data from the Ministry of Economy, Trade and Industry showed.
“I am sure Indian state-run refiners and Chinese traders would eventually find ways to resume regular and active purchases of Russian crude but near-term price spike in Middle Eastern market complex may be inevitable as there are more bidders for Persian Gulf barrels,” said a senior feedstock manager at a South Korean refiner.
Shandong-based independent refinery sources said they were not overly concerned about Russian supply issues but plan to focus more on regular crudes from the Middle East, West Africa and Latin America for deliveries starting in March, S&P Global Commodity Insights reported previously.
Platts, part of Commodity Insights, assessed the spread between front-month Platts cash Dubai and same-month Dubai swap at $3.70/b Jan. 14, the widest since $3.73/b reached Oct. 5, 2023. The spread averaged $1.998/b to date in January, compared to the $1.109/b average in December 2024.
The sharp rise in the Dubai market structure could encourage Middle East producers to raise their official selling prices further in the next trading cycle, according to Singapore-based traders.
Earlier in January, Saudi Aramco set the February OSP differential for its flagship Arab Light crude at a premium of $1.50/b to the Oman/Dubai average, rising 60 cents/b month over month, while its Arab Medium OSP differential was raised by 50 cents/b month over month to a premium of 75 cents/b.
South Korean refiners are much more flexible than Japanese importers in feedstock source diversification but Middle Eastern crude still makes up two-thirds of the former’s overall crude import basket. The sharp depreciation of the won and higher Persian Gulf spot and term premiums would be a double blow for refinery feedstock economics, according to refinery sources and analysts based in Seoul.
ESPO trade cancellation, new offers
Some of the regular China-based buyers of Far East Russian crude, including ESPO Blend, Sokol and Sakhalin grades, would likely seek to cancel any cargoes loading beyond Jan. 10 following the sanctions, trade sources based in Singapore and China with close knowledge of the matter said.
“Most of them will be canceled,” a China-based trade source said on the ESPO and Sokol cargoes that were already sold for January loading.
A Russian ESPO supplier approached at least one refiner in South Korea and one trading house in Japan to offer some January-loading cargoes. In addition, the Japanese integrated trading company received an email from a supplier based in Sochi offering various Russian oil products, according to market sources based in Seoul, Tokyo and Singapore.
South Korean refiners have completely stopped buying Russian crude since the fourth quarter of 2022, but the recent offer possibly shows Russian suppliers’ urgency to fill some of their canceled deals with Chinese or Indian buyers, according to a feedstock manager at a major South Korean refiner. The manager declined to be identified and refused to disclose the ESPO supplier’s identity due to the sensitive nature of Russian oil trades.
“I suppose ESPO price differential could trend lower in the near term, though this doesn’t really mean anything for South Korean refiners as we have absolutely no interest in Russian oil,” he said.
The second-month ESPO was assessed at a discount of $4/b to Platts Dubai on Jan. 14, Commodity Insights data showed.
Source: Platts
