Russian oil snapped up ahead of China fuel price hike – sources

The latest purchase by Unipec of Russian oil may once again make Russia the biggest crude supplier to China in June.  Gazprom photo.

By Florence Tan

SINGAPORE, April 26 (Reuters) – Unipec, the trading arm of Asia’s largest refiner Sinopec, has bought more than 5 million barrels of Russian oil for loading in June as it prepares to raise refinery runs in China, industry sources said on Tuesday.

Unipec’s purchase came ahead of a hike in domestic retail fuel prices by China that are expected to boost refining margins, the sources said.

The large purchase may once again make Russia the biggest crude supplier to China in June, after it wrested the No.1 spot from Saudi Arabia in March.

China announced on Tuesday it will raise fuel retail prices of gasoline and diesel, the first adjustments since January.

The government had said in January that it would no longer cut gasoline and diesel prices when global oil prices are below $40 a barrel. The decision encouraged Chinese refiners to ramp up output to capture large domestic profits and drove crude imports to a record high in February.

China’s oil demand, however, eased in April and May when global prices hovered at around $40 a barrel and erased gains for Chinese refiners.

“It’s an awkward price for Chinese crude buyers,” said a trader with a major oil firm who declined to be named due to company policy.

“They would prefer prices to either fall to $30 or rise above $40 so that the government would raise retail prices.”

A slowdown in China’s imports combined with upcoming peak refinery maintenance activities in late second quarter in Asia depressed spot premiums for Russian ESPO loading in June to the lowest in six months, giving Unipec a chance to take more.

Unipec likely bought all seven cargoes in Surgutneftegaz’s tenders at premiums ranging from $2 to just above $3 a barrel to Dubai quotes, the sources said. It also bought one of the cargoes in Rosneft’s tender, traders said.

Each cargo was for 730,000 barrels.

It is probably easier for Unipec to manage logistics when it buys in bulk, a trader with a North Asian firm said.

(Reporting by Florence Tan in SINGAPORE; Additional reporting by Olga Yagova in MOSCOW; Editing by Himani Sarkar)