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SINGAPORE: Prices of Russia’s ESPO Blend crude oil shipped to China have surged to a seven-month high as buyers rush to secure cargoes amid higher Russian demand and after Moscow pledged to cut exports. Russian light sweet crude loaded at the Pacific port of Kozmino for August-delivery to China traded at a discount of $4 per barrel against ICE Brent futures on a delivered-ex-ship (DES) basis, a significant jump from the $6 discount for July cargoes, traders said. It is the smallest discount since early December when the Group of Seven (G7) nations imposed a price cap on Russian crude, sending prices into free-fall as refiners and traders shunned the trade in fear of breaching the sanction.

Russia on Monday vowed to slash oil output and exports by 500,000 barrels per day (bpd) in August, with Moscow seeking to nudge up global oil prices in concert with Saudi Arabia. Even before that pledge, Russia’s oil exports were expected to fall in July as local refineries ramp up operations following maintenance.

Big Chinese private refiners such as Hengli Petrochemical and Jiangsu Eastern Shenghong Co have been active buyers due to the relative cheapness of Russian oil compared to non-sanctioned oil, and are expected to remain so following Beijing’s recent release of new import quotas.

“The price increase comes as the private refiners have just received new crude imports quotas. They are now out for shopping and Russian oil remains relatively cheap,” said one trader.

“Russian output is indeed being cut and there are more Chinese buyers”, said a second trader. Strong bids from Indian refiners are also helping push up prices for China, three other traders said. There has, however, been little interest from China for Urals oil out of Russia’s European ports, given supply cuts and strong demand from India, traders said. But traders said they expect price gains for ESPO to slow soon as it is likely to become even less economical than other sanctioned oil such as Iranian crude.

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