SINGAPORE: China is paying the deepest discounts in months for Russian ESPO crude oil amid weak demand and poor refining margins even though the effective prices refiners pay could exceed a price cap imposed this week by Western countries.

The $60 per-barrel cap, set by the Group of Seven (G7)nations, the European Union and Australia, took effect on Monday to limit Moscow’s power to finance its war in Ukraine, though Russia has vowed to defy it.

China, Russia’s top oil buyer, has not agreed to the price cap. Traders said they were doing business as usual.

China’s independent refiners, dominant clients of ESPO, a grade exported from the Russian Far East port of Kozmino, secure the shipments almost all on delivered basis from traders who arrange shipping and insurance, shielding the refiners from possible secondary sanctions that may result from the price cap.

The light sweet crude is favoured by Chinese refiners due to their proximity and the oil’s high middle-distillates yield.

But the Chinese government’s zero-COVID policy has weakened the country’s economy and demand for crude.

At least one December-arrival ESPO cargo was sold last week to an independent refiner at a discount of $6 per barrel against the February ICE Brent price on the delivery-ex-ship (DES) basis, according to four traders with knowledge of the deal. That compares with a premium of about $1.80 per barrel three weeks ago.