International oil majors have canceled spot cargo sales of Middle Eastern and Canadian crude to Shandong Yulong Petrochemical after the Chinese refiner was sanctioned by the UK last week, Reuters reported on Thursday, quoting sources with knowledge of the deals.
Last week, the UK sanctioned the two largest Russian oil majors, Rosneft and Lukoil, as well as several entities “involved in supporting the Russian energy sector,” including Shandong Yulong Petrochemical Company, China’s newest refiner, which sources about half of its crude supply from Russia.
Following the UK sanctions, Europe’s supermajors BP and TotalEnergies canceled cargoes to the Chinese refiner, as did the world’s top crude exporter, Saudi Aramco, as well as Kuwait Petroleum and Chinese giant PetroChina, according to multiple sources who spoke to Reuters.
The new UK sanctions have a wind-down period of one month and apply from November 13. Most of the cancelations of cargoes are for Middle Eastern and Canadian crudes that were scheduled to load after November 13, Reuters’ sources said.
The oil majors are concerned about payments from the now-sanctioned Yulong refiner as Western banks will be avoiding transactions with sanctioned entities.
With renowned foreign traders out of the dealings, Yulong, which has the capacity to process 400,000 barrels per day (bpd) of crude, will likely further boost sanctioned Russian barrels, according to analysts.
“We are already hearing Yulong is moving towards running predominantly sanctioned barrels, which, similar to the sanctions impact on Nayara, may necessitate run cuts,” Sun Jianan, an analyst with consultancy Energy Aspects, told Reuters.
Nayara Energy, the Indian refiner partly owned by Russia’s oil giant Rosneft, was hit hard by the EU sanctions against Russian oil customers. In July, in the first move against customers of Russian oil, the EU expanded sanctions on entities doing business with Russian oil and sanctioned Nayara Energy. The sanctions halted imports of Saudi and Iraqi crude for the Nayara Energy refinery in Vadinar, and decimated the facility’s oil supply in August, forcing the refiner to reduce run rates.
By Tsvetana Paraskova for Oilprice.com
