China's crude imports from Russia hits record as Xi, Putin eye stronger energy ties

China's crude oil imports from Russia surged to a record high of 2.01 million b/d (7.69 million mt) in February, General Administration of Customs data showed March 20, lifting the share of the non-OPEC supplier to nearly one-fifth and setting the stage for further energy cooperation when Chinese President Xi Jinping meets his Russian counterpart Vladimir Putin later this week.

As China continues to snap up attractively priced crudes shunned by western countries, the uptrend is expected to continue in March when imports of Urals crude from Russia are likely to hit a 33-month high, with PetroChina and independent refineries both seen to receive hefty deliveries, S&P Global Commodity Insights reported.

When the European Union ban on Russian crude came into effect in early December, Chinese buyers paused for a while and sought clarification on logistics and trade financing but then sharply stepped up purchases to take advantage of the plentiful availability.

The February import volume from Russia surged 42% year on year and was 33.1% higher than shipments from second-largest supplier Saudi Arabia at 1.51 million b/d (5.77 million mt).

The previous record high was 1.99 million b/d in May 2022, according to GAC data.

The cost of the Russian crude imports averaged $73.53/b, 13.7% lower than $85.23/b in the same month a year earlier, GAC data showed. Cargoes from Saudi Arabia averaged $83.15/b in February.

Challenges to Middle East, Africa

With Russian crude inflows jumping 23.8% year on year to 1.95 million b/d (15.68 million mt) and accounting for 18.7% of total crude imports over January-February, suppliers from the Middle East and Africa saw their sales erode, according to the GAC data. China's crude shipments from the Middle East and Africa fell 12.7% and 27.3% year on year, respectively, to 5.15 million b/d and 989,000 b/d.

A steep surge in Russian oil inflows comes as Russia and China are set to sign cooperation agreements during Xi's state visit to Russia on March 20-22. Xi previously described energy as the cornerstone of the two countries' cooperation, supporting the crude stream to grow further, a policy watcher in Beijing said.

The bilateral meeting also reflects the fact that China's importance as a key trading partner for Russia continues to grow in the wake of Russia's invasion of Ukraine, with Western countries issuing wide-ranging sanctions on Russia's commodities and financial sectors.

A major element in Russia's strategy to mitigate the impact of this response is to redirect energy exports that previously went to Europe to non-sanctioning countries, including China and India.

Independent refineries' push

"The coming agreement may lead state-run oil firms to lift Russian crude imports, on top of the independent refineries' current hefty buying," a Beijing-based analyst said.

Independent refineries were the main contributor of the surge in January-February, taking 1.02 million b/d (8.17 million mt) of Russian crude, S&P Global data showed. The volume accounted for 52.3% of China's total crude imports from Russia, S&P Global estimated, with most of the rest barrels being imported by CNPC under long-term contracts with Rosneft for about 800,000 b/d supplies via pipeline.

In February, the independent refineries not only imported the regular ESPO crude but also rare Arctic crudes Varandey and Novy Port.

With sanctions, Arctic flows are set to be sustainable amid a smoother voyage as weather is getting warm, refining sources said.

Meanwhile, "those crude barrels blended in Malaysia will continue to dominate independent refineries' feedstock market this year," an independent refiner source said.

Malaysia, Indonesia and the UAE are often reported as the origins of blended Iranian and Venezuelan crudes.

China's crude imports reported from Malaysia surged 144.2% on the year to 656,000 b/d (5.28 million mt) in January-February, pushing up shipments from Asia-Pacific by 137.3% to 744,000 b/d, GAC data showed.