Sinopec shifts 6% of capacity to Russian crude on Mideast cuts

Sinopec has redirected 5% to 6% of its refining capacity to Russian ESPO crude as the Iran war severs Middle East supply.

Sinopec Corp, the world's largest refiner, has bought 30 to 40 cargoes of Russia's Eastern Siberia-Pacific Ocean blend for July-September delivery, equal to 241,000 to 320,000 barrels a day, or 5% to 6% of its 5.2 million bpd processing capacity, according to multiple trade sources and ship tracking data.

"Sinopec's crude demand appears to have bottomed out following the easing of fuel export restrictions, but the recovery remains selective," said Emma Li, lead China analyst at ship tracker Vortexa Analytics.

China's June crude imports plunged 41% from a year earlier to near-decade lows, yet Sinopec secured about 7.4 million barrels of ESPO in July, mostly delivered into Rizhao port in the refining hub of Shandong province. The refiner has bought at least 10 cargoes each for August and September, with ESPO typically shipped in Aframax vessels carrying 740,000 barrels.

The pivot away from Saudi crude is stark. Sinopec took no Saudi barrels in June or July and just 2 million in August, versus 20 million in each of March and April — less than a fifth of the 11 million barrels a month it averaged in the year before the Iran war began. Before the conflict, Sinopec sourced nearly half its crude from the Middle East and ranked among Saudi Arabia's biggest customers.

Saudi Cuts Reshape Global Flows

The purchases mark a resumption of Russian buying that Sinopec suspended in October after Washington imposed sanctions on top producers Rosneft and Lukoil. Beijing does not recognize what it calls unilateral sanctions, and independent Chinese refiners kept buying Russian crude throughout. Sinopec resumed purchases in March and April after a temporary U.S. waiver, taking roughly 10 cargoes, then increased volumes after the waiver expired as the Iran war squeezed supply.

Its recent ESPO purchases have not involved sanctioned entities as counterparties and were made through intermediaries, four people familiar with the matter said. Since the early days of the Ukraine war, Sinopec has settled Russian oil purchases in yuan.

Price Gap Widens to $10

September-loading ESPO was pegged at discounts of $1 to $2 a barrel to benchmark Brent, about $10 cheaper than rival grades such as Middle Eastern Oman and Brazil's Tupi, traders said. Before the Iran war, Russian ESPO crude traded at a discount of about $10 per barrel to Brent.

The cheaper Russian barrels have helped Sinopec maintain relatively stable throughput and ship surplus fuel on strong export margins, even as China limited overseas fuel sales from March to protect domestic supply during the war-related trade disruptions. Brent crude, the international benchmark, has swung from a high of $102 a barrel during the conflict to $78.81 on Wednesday, while the U.S. emergency crude buffer has fallen to 43 days of supply, a 45-year low, according to Bank of America Global Research data.

The redirection of the world's largest refiner's buying shows how the Iran war has tightened global crude supply and realigned energy trade routes. Saudi Aramco, whose second-quarter profit surged 33% to $33.4 billion on higher prices, has relied on its 1,200-kilometer East-West pipeline to bypass the Strait of Hormuz and keep exports flowing at 7 million bpd. For Sinopec, the shift locks in cheaper Russian barrels while Middle East supply remains hostage to the conflict's trajectory — a dynamic that, if the war drags on, could keep Brent elevated and deepen the pressure on Saudi export volumes.

This article is for informational purposes only and does not constitute investment advice.