Russian crude premiums collapse as Asian refiners cut back

Russian Urals Crude Premiums Collapse as Asian Refiners Pull Back

Russian crude oil that commanded steep premiums across Asian markets just weeks ago is now seeing those gains rapidly evaporate, as Chinese and Indian refiners draw down inventories and slash processing rates in response to weak margins and sluggish fuel demand.

From Premium to Pressure

The reversal marks a dramatic shift from the pricing environment that prevailed in March and April, when the U.S.-Iran conflict and the effective closure of the Strait of Hormuz sent Asian buyers scrambling for alternatives to disrupted Middle Eastern supply. Russian Urals crude delivered to Indian ports traded at premiums of $6 to $8 per barrel above dated Brent in April, according to Reuters, while ESPO Blend fetched $5 to $6 above ICE Brent on a delivered basis into China.reuters

By mid-May, Urals premiums in India had fallen to $2 to $4 per barrel, and ESPO Blend premiums for June delivery had eased to $3 to $4, down from $4 to $5 the previous month, according to a Reuters report dated June 4. Iranian Light crude, another staple for China’s independent refiners, flipped to a discount of 50 cents to $1 per barrel below ICE Brent for June delivery in Shandong province — down from premiums of $1 to $2 in April and May.globalbankingandfinance

China’s Demand Contraction Drives the Shift

The weakness stems primarily from China’s sharp reduction in crude imports. Beijing cut seaborne crude purchases from 11.7 million barrels per day in February to just below 9 million by late May, a contraction of nearly 3 million bpd that J.P. Morgan analysts called a “disproportionate” contribution to rebalancing global markets. In May, China’s imports of Russian crude fell to 1.04 million bpd, the lowest since August, according to data from Kpler.cnbc

China’s independent refiners — the teapots of Shandong that are the primary consumers of sanctioned crude — have been cutting run rates amid mounting losses from elevated feedstock costs and weak domestic fuel demand. “Buyers aren’t accelerating procurement even if supply is tight, because prices are still too high for teapots who are suffering great losses,” said Xu Muyu, Kpler’s senior crude oil analyst.globalbankingandfinance

Russia Adjusts as Export Landscape Shifts

Compounding the demand-side pressure, Russia itself is preparing to reduce crude exports in June as it ramps up domestic refinery operations to address looming fuel shortages, with preliminary data suggesting shipments from key western ports could fall to 1.7 million bpd, down from 2.5 million bpd previously, Reuters reported on June 8. Turkey has also curbed its Urals imports to the lowest level in nearly 18 months.reuters

The pricing correction underscores the fragility of the premiums Russian crude earned during the height of the Middle East crisis — premiums that depended on sustained, urgent buying from Asian refiners now focused on preserving margins rather than building stocks.