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A number of suppliers have halted their oil sales from the Middle East and Canada to China’s Yulong Petrochemical following the imposition of UK sanctions on the refiner. This development is expected to compel Yulong to seek additional Russian crude supplies, as reported by several sources familiar with the situation.
Yulong Petrochemical, which operates as China’s newest refinery with a processing capacity of 400,000 barrels per day, is one of the country’s leading purchasers of Russian oil. The UK recently designated it as part of a broader effort to minimize Moscow’s oil revenues that support the ongoing conflict in Ukraine.
Among the suppliers retracting their agreements are major European firms such as TotalEnergies, BP, alongside Saudi Aramco, Kuwait Petroleum Corporation, as well as trading house Trafigura and China’s state-run PetroChina International, according to insider accounts.
The majority of the contract cancellations involve spot cargoes that were set to be loaded after November 13, the date when the sanctions come into force. This includes two shipments of 2 million barrels each from Kuwait Petroleum and Aramco, as confirmed by three informed sources.
Both PetroChina International and TotalEnergies have withdrawn from transactions related to the Access Western Blend, a type of heavy crude sourced from Canada, according to two additional sources knowledgeable about these deals.
BP and Aramco opted not to comment on the situation, while Kuwait Petroleum, TotalEnergies, PetroChina, and Yulong have not provided responses to inquiries.
Trafigura had been providing Yulong with a monthly supply of 2 million barrels of Omani and Abu Dhabi Upper Zakum crude under a yearly contract, according to insiders acquainted with Trafigura’s dealings with Yulong.
Shift Towards Russian Oil
The cancellation of contracts is partly due to worries over payment capabilities, as many major Western banks are likely to steer clear of transactions involving sanctioned entities, according to multiple sources.
With limited access to non-sanctioned crude oil, it is anticipated that Yulong will increase its Russian oil purchases, which already represent around half of its total volume.
“There are indications that Yulong is increasingly shifting towards handling primarily sanctioned barrels, which could lead to operational cuts, much like the sanctions have affected Nayara,” said Sun Jianan, an analyst at Energy Aspects.
Nayara Energy, partly owned by Russian firm Rosneft, has reduced its refinery operations following the imposition of EU sanctions in July, relying solely on Russian oil after suppliers like Aramco and Iraq’s SOMO ceased sales.
While larger companies may distance themselves from Yulong, smaller firms without ties to the UK could continue their business interactions, as noted by an executive whose company is still supplying Yulong but wished to remain anonymous due to the sensitive nature of the subject.
Yulong is estimated to purchase between 150,000 and 250,000 barrels per day of Russian crude, according to estimates from traders and tanker tracking service Vortexa.
The majority of Yulong’s imports from Russia consist of ESPO Blend crude from the Pacific coast, favored by Chinese refineries due to the shorter transit times. Additionally, Yulong has recently started importing Urals crude from Russia’s European ports, according to three traders who are familiar with Yulong’s buying patterns.
Much of Yulong’s Russian supply is sourced from dealers associated with prominent Russian oil producers, as indicated by two sources.
Yulong Petrochemical, located on a man-made island near Yantai in Shandong province, is a collaborative venture between the private aluminum manufacturer Nanshan Group and the state-supported Shandong Energy Group.