EXCLUSIVE-China's state-owned refiners shun new Russian oil deals, sources say

Oil refinery in Dongying, Shandong Province, China

By Chen Aizhu and Florence Tan

SINGAPORE (Reuters) – China’s state-owned refiners are honoring their Russian oil contracts but shunning new business despite deep discounts, heeding Beijing’s call for caution as Western sanctions against Russia for invading Ukraine are increased, they said. six people told Reuters.

State-owned Sinopec – Asia’s biggest refiner – CNOOC, PetroChina and Sinochem were sidelined in trade talks for new Russian cargoes for shipments in May, said the sources, who are aware of the matter but spoke on condition of anonymity due to to the sensitivity of the subject.

Chinese state-owned companies do not want to be seen as openly supporting Moscow with purchases of extra volumes of oil, two people said, after the US government banned Russian oil last month and the European Union imposed sanctions on top Russian exporter Rosneft and Gazprom Neft.

“State companies are cautious as their actions could be seen as representative of the Chinese government and none of them wants to be singled out as a buyer of Russian oil,” said one of the sources.

Sinopec and Petrochina declined to comment. CNOOC and Sinochem did not immediately respond to a request for comment.

China and Russia have developed increasingly close ties in recent years, and in February they announced a “no-limits” partnership. China has refused to condemn Russia’s action in Ukraine or call it an invasion, and has also repeatedly criticized Western sanctions against Russia.

The world’s biggest oil importer, China is the main buyer of Russian oil, with 1.6 million barrels a day, half of which is supplied by pipeline under government-to-government contracts.

A drop in Chinese imports of Russian crude could push its giant state-owned refiners to turn to alternative sources, heightening global supply concerns that pushed benchmark Brent crude prices to 14-year highs of close to $140 a barrel at the start. March.

TEAPOTS REFINERIES KEEP BUSINESS ‘SECRET’

Sanctions concerns have led some independent refiners known as ‘teapots’ – once a dynamic group that consumed about a third of Russia’s oil imports from China – to go unnoticed.

“The negotiations of these companies were very slow and secret. Some deals are being made, but the details are kept under wraps. Nobody wants to be seen buying Russian oil in public,” said one dealer.

To keep the oil flowing, these refiners are implementing alternative payment mechanisms, such as money transfer, payment after delivery of cargo and use of Chinese currency.