Chinese state-owned oil companies, PetroChina and Sinopec, have resumed purchases of low-cost Russian crude after a temporary halt at the end of 2022, according to a new report from Reuters, an indication the two superpowers could be forming an energy alliance.
The move comes just as the European Union imposed an embargo on Russian crude because of the Ukraine conflict. Russian Urals crude, typically used in Europe, is now being sold to India and China at lower prices.
PetroChina has been granted permission to purchase Urals crude from trading companies at large discounts. The company will receive about 1.5 million barrels of Urals crude later this month, while Unipec, the trading arm of Sinopec, will also resume imports, although the volume and delivery location are not yet known.
Both state-owned refiners are allowed to purchase only Russian crude that is delivered to China from companies that manage payments to Russian producers and arrange for shipping and insurance.
By purchasing discounted Russian crude, Chinese oil refiners are reportedly hoping to sharply reduce costs, boost profit margins, and increase capacity as China's demand for fuel has rebounded, following the regime's decision to end its draconian zero-COVID policy.
According to trade sources and ship-tracking data from Refinitiv and Kpler, PetroChina last imported 730,000 barrels of Urals crude each in October and November, and Unipec was one of the major buyers of Russian crude oil last year when western countries stopped trading with Russia over the war in Ukraine.
"It's not a surprise to see China's state-owned refiners taking Russian oil at this moment," one China-based oil trader told the agency. "Prices of Urals are well below the price cap, and the cheap feedstocks are timely as they would increase refining throughput when China's demand picks up."
However, the resumption of trade does not represent a violation of international sanctions. The companies are not using western ships or insurance and are going through middlemen to shield themselves from scrutiny. Shipping and insurance are major obstacles to the Russian oil trade, as the country's financial institutions and insurance companies remain under sanctions and would be unable to issue payouts in the case of accidents.
According to Kpler data, China's imports of Urals crude dropped to only 1.45 million barrels in December from a peak of 9.67 million barrels in August. However, they rebounded in January and are expected to grow in the coming months. Neither PetroChina nor Unipec have yet commented on the resumption of discounted Russian crude purchases.