Middle East crude premiums surge after fresh US sanctions on Russian crude

Asian crude traders experienced rising oil prices and spreads Jan. 13 following new US and UK sanctions on Russian crudes from the week ended Jan. 10.

Chinese and Indian refiners are expected to temporarily avoid Russian crudes until a workaround is identified, leading to a surge in Middle East crude values. Prompt Dubai crude futures time spreads rose sharply, with the February-March spread assessed by Platts at $1.35/b at the Jan. 13 Asian close, up from 78 cents/b at the Jan. 10 Asian close and a high not seen since Oct. 20, 2023, when it was similarly assessed at $1.35/b, according to S&P Global Commodity Insights data.

The US and the UK announced a fresh package of sanctions on Russia's energy sector Jan. 10, including new curbs on two major Russian oil producers, as the countries double down on a recent push to hit Moscow's oil revenues which are being sustained by its shadow tanker fleet and "opaque" traders of Russian oil.

A source with a Shandong-based independent refinery said no shipowners would move Russian barrels in the short term, but expected prices of Russian barrels would gradually soften to meet the $60/b price cap while the regular shipping market may become tight because of that.

A senior trading source with Sinopec said about one-third of Iranian crudes and one-fifth of Russian crudes would be affected, adding that regular crudes from Middle East and West Africa are set to rally.

However, a refining source with Sinopec said they were still able to load Russian cargoes, though freight rates have jumped since the sanctions were announced.

An Indian refinery source said they will likely halt Russian crude purchases in the interim pending further guidance from management.

"India buyers were looking for March cargoes when these sanctions were announced ... This set of sanctions is much tougher," the source said.

A clause in the document from the US Treasury's Office of Foreign Assets Control outlining the sanctions states that it only applies to cargoes loading from Jan. 10, with any transactions prohibited beyond that date.

Some traders said buyers of Far East Russian crude grades ESPO blend, Sokol and Sakhalin crude, would likely seek to cancel any cargoes loading beyond Jan. 10 following the sanctions.

"I think 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.

"Sokol crude might not be lifted. All the ships have been sanctioned," a second trader said, adding that FOB values for Far East Russian crudes are expected to plunge.

Aframax freight rates to ship ESPO blend crude from Kozmino to north China were heard to have jumped to lumpsum $2 million Jan. 13, up from when Platts assessed the rate at lumpsum $1.625 million Jan. 10, S&P Global Commodity Insights data showed. Sources said some shipowners were asking for payment of as much as $5 million to lift any ESPO blend cargoes on that route.

Russian crude flows via pipeline are expected to remain stable, with PetroChina refineries in the northeast and northwest of China currently receiving competitive feedstock supplies from Russia via pipelines.

PetroChina's parent, China National Petroleum Corporation, has term deals with Rosneft to import about 800,000 b/d of crude, comprising 200,000 b/d via Kazakhstan through the Atasu-Alashankou pipeline under a bilateral state agreement and 600,000 b/d of ESPO Blend via the Skovorodino-Mohe pipeline.

Russia was China's top crude supplier in 2024. It delivered 2.17 million b/d to China in January-November, rising 1.7% year over year to account for 19.6% of market share, Chinese customs' data showed.

Unsanctioned crudes

Demand for regular, unsanctioned crudes from the rest of the globe are expected to benefit, with Middle East crude premiums seen surging in Asian morning trade Jan. 13, while differentials for the US' medium, sour Mars crude firmed during the Jan. 10 session.

The front-month IFAD Murban against same-month Dubai futures contract was trading sharply higher at a premium of $2.71/b in Asian morning trade Jan. 13, data from the Intercontinental Exchange's ICE Futures Abu Dhabi showed.

This was up from when Platts assessed front-month cash Murban at a premium of $1.75/b over same-month Dubai futures at the most recent Jan. 10 Asian close, and a high last exceeded on Oct. 24, 2023, when it was at a premium of $3.20/b, according to S&P Global Commodity Insights data.

A crude derivative trader attributed the rally in Dubai time spreads to a combined consequence of both sanctions and market short covers. "Thin liquidity but valued gapped," the trader said.

On the Shanghai International Energy Exchange, the INE SC futures contract has rallied by 7%, with sources saying that independent refiners have lifted their oil product offers by Yuan 500/mt ($68.2/mt) over the weekend.

A North Asian refiner noted they were watching how product crack spreads react to gauge any impact on their operations, while Southeast Asian refiner said they were still evaluating the surge in premiums.

Chinese Independent refiners meanwhile were heard Jan. 13 asking for offers for March-delivery stems of Angolan crudes such as Girrasol, Nemba, Cabinda and Clov, according to sources.

A Singapore-based crude oil trader said the recent price movements could be an immediate reaction, with more time needed to observe any long-term impact from the sanctions.

"Several bull factors, so market reacts. Need time to see if there is a lasting impact. Key point now is demand," the trader said.