Discounts on Russian crude evaporate as Middle East crisis tightens global oil supply

The resumption of attacks and shipping blockades in the Strait of Hormuz has again throttled oil shipments from the Middle East, sending Indian and Chinese refiners into an aggressive pivot toward Russian crude and other alternatives for September deliveries.

Chinese Refiners Lock In Russian ESPO, Eye Iranian Barrels

Two major Chinese refiners purchased most of the September-loading Russian ESPO Blend crude from the Pacific port of Kozmino, according to a Reuters report citing three trade sources. The cargoes were sold at discounts of $1 to $3 per barrel to ICE Brent, narrowing from around $4 per barrel for August-loading ESPO, reflecting intensifying competition for available supply.energynow+1

Meanwhile, independent refiners in Shandong province — known as "teapots" — have resumed discussions to purchase Iranian crude. Iranian Pars crude, a heavy grade, was offered this week at a discount of about $8 per barrel to ICE Brent for Shandong delivery, while Iranian Light slipped to discounts of $3 to $4 per barrel. However, teapots are not rushing to buy as refining margins have weakened with Brent crude nearing $100 a barrel.energynow

India Faces Vanishing Russian Discounts

In India, Bharat Petroleum Corp confirmed that traders have stopped offering discounts on Russian crude for September deliveries. BPCL's Director of Finance VRK Gupta said the company has secured supplies through August but the September outlook remains uncertain. The shift is stark: as recently as early July, Urals crude for Indian delivery traded at discounts of more than $10 per barrel to dated Brent, and even in June, discounts of $2 to $3 were available.whalesbook+3

India's crude imports from Russia have averaged around 2.45 million barrels per day in July, near June's record of 2.64 million bpd, according to Kpler data cited by the Times of India. Indian refiners have also expanded their crude sourcing to include Venezuelan and Angolan grades as they seek to diversify away from constrained Middle Eastern supply.timesofindia.indiatimes+3

India's Refining Exports Surge

India is capitalizing on wide crack spreads by processing Russian crude and selling refined products into tight Asian markets. Exports of light and middle distillates are estimated to reach 1.55 million barrels per day in July — the second-highest level in Kpler's data series dating back to 2017. The surge comes as Asia's fuel imports dropped 32% from pre-conflict averages, according to Reuters, creating an opening for Indian refiners running at high utilization rates.oilprice+2

"Given the uncertainty in the Middle East, ESPO is a safer bet, and it is also cheaper," a trader with a Chinese refiner told Reuters.energynow