ESPO

Updates

December 16, 2022: sanctions affecting ESPO deliveries.

Original Post 

A huge, huge thanks to a reader for sending me a link regarding ESPO -- see farther down this post.

I was unfamiliar with that "brand" of Russian oil. 

ESPO: think Keystone XL (canceled by Biden) -- longer but about the same volume. The East Siberia Pacific Ocean takes oil from Siberia to a Russian port on the Sea of Japan.

China asked for a spur to the interior of China; the spur to Daqing, China.

• Daqing, China, is to the far northeast of Beijing.

The D5S "caps" only affect sea-going oil, so the $60-cap does not apply to the oil transported on the ESPO (pipeline + spur) unless it is transferred to sea-going tankers at port.

Geo-politics:

• prior to sanctions: one-third ESPO oil to China; two-thirds to the port -- on to Japan, Korea
• after sanctions: more will go to China; unaffected by $60-cap
• questionable how much will still go by ship to Japan, Korea, etc.
• questionable how much will go to India
• India: Iraq, Saudi were #1, #2, prior to sanctions but now Russia is #1 supplier for India
• Saudi, Iraq not likely to cede India to Russia;
• regardless, India's appetite for oil will require oil from all three: Iraq, KSA, and Putin;
• The "big" brand of oil for Russia is not ESPO oil but Urals which supplied Europe.
• Russia lost huge European-Urals market; won't be made up with ESPO oil
• Siberian oil: huge dependence on western technology for very harsh environment

Bottom line for me:

• stories on ESPO a distraction
• but analysts will talk about ESPO to make folks think they know what they're talking about.

Map of China:

*******************************
Click Bait

One needs to read to very end of that article to get to this: 

At least one cargo of ESPO, which is preferred by China’s independent refiners, was sold last week at a discount of $6 per barrel to the February ICE Brent price on the delivery-ex-ship (DES) basis, traders familiar with the transaction told Reuters. At the current price of Brent Crude, this means that the ESPO cargo was sold at around $68 per barrel.  

While the ESPO crude is easier for Russia to move from its Far East to China, the price of Russia’s Urals grade, shipped from the Baltic port of Primorsk, was assessed at well below the price cap on Thursday, at just $41.59 per barrel according to Argus.  

Even the headline was at odds with the three summary points:

Now, let's take a look at a few other more credible stories.

First link.

Second link.

Third link.