Chinese and Indian refiners are scouring the globe for supplies of crude as fresh U.S. sanctions on Russian producers and tankers curb shipments to Moscow's top customers, traders said.
The U.S. Treasury on Friday imposed sanctions on Russian oil producers Gazprom Neft (SIBN.MM) and Surgutneftegas, as well as 183 vessels that have shipped Russian oil, as it targets the revenues Moscow has used to fund its war with Ukraine.
Many of the tankers have been used to ship oil to India and China as Western sanctions and a price cap imposed by the Group of Seven countries in 2022 shifted trade in Russian oil from Europe to Asia. Some tankers have also shipped oil from Iran, which is also under sanctions.
On Monday, China reiterated its opposition to unilateral U.S. sanctions.
The measures have disrupted the trade in sanctioned oil, pushing Chinese and Indian refiners back to sellers of non-sanctioned oil, tightening supply and driving up spot premiums for crude produced in the Middle East to Africa and Brazil, traders said.
Over the weekend, new Chinese refiner Yulong Petrochemical bought 4 million barrels of Abu Dhabi's Upper Zakum crude loading in February and March from Totsa, the trading arm of French energy major TotalEnergies (TTEF.PA), traders said.
The cargoes are for its 400,000 barrel per day refining complex in Yantai, eastern Shandong province, which started trial runs in September.
Yulong, which has previously bought Russian ESPO Blend crude, has purchased Angolan and Brazilian crude in recent weeks, traders said, and is now in talks to buy more oil from West Africa as well as Canada.
The refiner purchased 2 million barrels of Angolan Girassol and Nemba crude and also 2 million barrels of Brazilian Buzios and Tupi crude, they said.
The sources declined to be named as they were not authorised to speak to media. Yulong and Totsa typically do not comment on commercial deals.
Indian refiners which bought spot Middle East crude last week before the sanctions were announced, are still looking for more cargoes, more traders said.
India's Bharat Petroleum Corp Ltd (BPCL.NS) bought 2 million barrels of February-loading Oman crude from Totsa via a tender last week, two people familiar with the matter said.
The strength of the demand is helping Totsa offload an overhang of Middle East crude supplies after it amassed cargoes via S&P Global Platts' trading platform in the past four months, traders said.
Global Brent crude futures rose above $81 a barrel to their highest since August during Monday's trade.
Spot premiums for Middle East benchmark grades jumped more than 70% to about $3 a barrel on Monday, traders said, reaching their highest since October 2023.
The premiums for sweet grades have also risen, with Brazilian crude for March delivery transacting at premiums of more than $3 a barrel to dated Brent last week, up about $2 from levels seen in early December, one of the traders said.
"The biggest disruptions will be on shipping," a trading executive involved in the Russian oil business said, adding that complications could arise if a ship is owned or managed by companies that are involved in operations of sanctioned tankers.
The market is likely to see a growing number of middlemen marketing oil from sanctioned producers, Gazprom Neft and Surgutneftegaz, while there will be more payments in Chinese yuan via China's Cross-border Interbank Payment System (CIPS), the executive said.
Also included on Friday's sanction document were two Chinese oil logistics firms -- Shandong United Energy Pipeline Transportation Co Ltd and Guangrao Lianhe Energy Pipeline Conveyor Co -- both based in eastern China's Shandong province, a refining hub and China's top destination for sanctioned oil.
As these companies mostly transport oil from storage tanks to domestic refiners with payments in Chinese yuan, there would be little impact from the sanctions, the trading executive added.
