A landmark trade truce agreed last week between US leader Donald Trump and Chinese leader Xi Jinping has left the oil market in limbo. While the two sides found new ground on semiconductors and soybeans, the critical issue of Russian oil sanctions was conspicuously absent from public readouts, adding to market confusion.
This uncertainty comes just as Chinese refiners are desperately seeking clarity. State-owned giants Sinopec and PetroChina are actively canceling Russian crude cargoes. They are reacting to a new wave of US sanctions targeting Moscow’s top producers, Rosneft and Lukoil.
The private sector is even more spooked. “Teapot” refiners are holding off on purchases after the UK and EU blacklisted one of their own, Shandong Yulong Petrochemical Co. This “buyers’ strike” has hit Russian crude hard, causing ESPO prices to plunge and affecting an estimated 400,000 barrels a day.
This disruption is a clear goal of Western policy, which aims to stop the flow of oil money to Moscow. Russia had previously secured its status as China’s top supplier by offering steep discounts, a strategy that is now failing as the risk of sanctions outweighs the reward of cheap crude.
The lack of guidance from the Trump-Xi meeting only adds to the muddle. China, the world’s biggest crude importer, will need to source its oil from somewhere, potentially benefiting the US. However, teapots are also facing a domestic shortage of import quotas, further clouding the outlook for Russian oil sales.