ChemChina receives China's first ever Russian arctic Novy Port crude cargo

Singapore — ChemChina received a cargo of Novy Port crude during the week ended July 12, loaded from Russia's Arctic region, marking China's first ever import of the light sweet arctic Russian grade.

The 144,000 mt Novy Port crude cargo boarded the Greek-flagged 157,583 dwt Delta Hellas at Russia's Murmansk on May 12 and traveled 12.502 nautical miles via the Suez Canal to Yantai port in eastern China's Shandong province, according to S&P Global Platts' trade-flow software, cFlow.

The discharge of the cargo was finished on July 9, according to cFlow.

Novy Port is a light sweet crude that Gazprom Neft produced from Russia's gas-rich Arctic region. It has an API of 35 degree and 0.1% sulfur content.

In comparison, Lukoil's Arctic crude Varandey has around 0.5% sulfur content and API gravity is around 35-37, which hit China market in September via the 6,437 nautical mile Northern Sea Route.

The price for Novy Port was quite similar to a Varandey cargo, which was at around ICE Brent Futures minus $6/b on a DES Shandong basis for June delivery, another source said.

"[Price differential] of the cargo was slightly lower compared with Russian ESPO Blend for the same loading window," a source with knowledge of the deal said on July 14.

ESPO is the most popular crude for refineries in Shandong. The medium sweet Far East Russian grade has API gravity of about 34-35 degrees with a sulfur content range of 0.58%-0.65%. Northeast Asian refiners typically buy spot ESPO crude cargoes on Platts Dubai pricing basis.

NARROW BRENT-DUBAI EFS

It was the first time for Gazprom Neft to supply the light sweet Arctic crude to China. The company has been regularly exporting Russian Arctic crude oil since 2013, almost all of which were sold to European traders and end-users, according to a company statement released on July 13.

But there will be no additional cargoes to arrive by end-August, according to sources with knowledge of the matter.

However, narrow Brent-Dubai price spread would likely allow many Northeast Asian refiners to pick up more spot cargoes from the North Sea and Arctic Russia, refinery sources and traders based in Beijing, Seoul and Singapore said.

"Competitive Brent allows that extra room to explore new and untested grades like the Novy Port. Also, ice sheets in the arctic sea gets thinner during this time of the year so logistics favor Arctic crude imports," said a crude trading manager at Beijing-based Chinaoil, a trading arm of state-run PetroChina.

South Korean refiners are gradually picking up more and more light sweet crude cargoes from the North Sea and Russian Arctic markets. North Sea Forties crude and Russian arctic Sabetta, also known as Yamal condensate, are among the favorite Brent-linked grades, said a market research manager at Korea Petroleum Association based in Seoul.

Brent's premium against Dubai has narrowed sharply this year and even flipped to a discount against the Middle Eastern benchmark for the very first time on March 11.

The Brent/Dubai Exchange of Futures for Swaps -- a key indicator of Brent's strength or weakness against the Middle Eastern benchmark -- averaged minus $1.09/b in Q2, falling from 41 cents/b in Q1 and $2.93 in Q4 2019, Platts data showed.

The EFS averaged 84 cents/b to date in July but it remains sharply lower than 2019 average of $2.38/b.

A weaker EFS makes low sulfur crude grades produced in the North Sea, Mediterranean and arctic Russia that are priced against Brent more attractive than Dubai-linked Persian Gulf grades.