Discounts for ESPO Blend, delivered from the Pacific port of Kozmino to China, widened to nearly $9 a barrel to ICE Brent this week, from $7-$8 in recent months
Discounts on Russian oil exports to China widened to new records this week as sellers cut prices to lure demand from the world’s top crude importer and offset the likely loss of India sales, traders said.
Price cuts for China came after US President Donald Trump announced on Monday a trade agreement with Indian Prime Minister Narendra Modi that included halting oil purchases from Russia, but without giving details on how and when.
A halt by India would make China the only major client for cheap Russian oil. The world’s second-biggest oil exporter is already struggling with falling demand from India due to Western sanctions, with Russian oil in floating storage rising.
JPMorgan analysts led by Natasha Kaneva said their base case is that India will import Russian crude at 800,000 to 1 million barrels per day, or 17-21 per cent of its total crude imports, after the trade deal.
India’s Russian oil imports peaked around 2 million barrels per day last June.
“China, especially Shandong’s independent refiners, are the main beneficiaries of this trend – absorbing most displaced Russian barrels and boosting margins, runs, and strategic stockpiles thanks to deep discounts and supportive domestic policy,” the analysts wrote in a February 4 note.
Wider discounts
Discounts for ESPO Blend, delivered from the Pacific port of Kozmino to China, widened to nearly $9 a barrel to ICE Brent this week, from $7-$8 in recent months, trade sources said.
Discounts for Russian Urals grade, exported from the Baltics – typically to India – were at about $12 per barrel and could widen further, they added.
“Chinese buyers have been benefiting from multi-year low discounts on Russian crude in recent months, to the extent that some have even reduced Iranian intake in order to absorb more Russian barrels,” said Vortexa analyst Emma Li.
“Given that India’s pullback is likely to trigger even deeper discounts, this behaviour is likely to continue in the near term.”
Chinese independent refiners, known as teapots, remain the main buyers of sanctioned oil, with January Russian oil volumes into the teapot hub of Shandong province at record highs, according to Li. Chinese state refiners have suspended seaborne Russian purchases since October after the US sanctioned Russian producers Rosneft and Lukoil.
The limits of China’s demand
However, China has likely hit its limit for Russian crude imports if state refiners continue to sit out, traders and analysts say.
China’s Russian seaborne crude imports rose to a record 1.7 million barrels per day in January, as India cut back imports to 1.1 million bpd, the lowest since November 2022, data from analytics firm Kpler showed.
OilX put China’s January imports at 1.64 million bpd, the highest since March 2024.
Independent Chinese refineries do not have the capacity to take up all of the excess Russian supply, analysts said.
“Amid rising onshore inventory, we expect Russian seaborne flows to China to decrease from March, following elevated levels of Jan-Feb 2026,” said Sun Jianan, a senior analyst with Energy Aspects.
Vortexa’s Li said: “Without re-engagement from the state-owned majors, Russia is still facing an oversupplied market despite strong teapot absorption.”
Still, there’s hope for more demand as CNPC plans to restart a unit at its refinery in the northeastern city of Dalian around mid-year to rake in high margins from Russian crude, Reuters reported.
