Russian oil discounts to China widened to near $9/barrel as India halts purchases post US deal. China’s independent refiners absorb record volumes (1.7m bpd Jan) but may hit import limits without state buyers

Russian oil suppliers are offering unprecedented discounts to Chinese buyers this week, seeking to stimulate demand from the world’s largest crude importer and offset the potential loss of significant sales to India. Traders report that these deeper price cuts for China have emerged following an announcement by U.S. President Donald Trump detailing a trade agreement with Indian Prime Minister Narendra Modi, which includes a halt to oil purchases from Russia, though specific implementation timelines remain unclear.

Such a withdrawal by India would leave China as the primary destination for heavily discounted Russian crude. Russia, the second-largest global oil exporter, is already experiencing reduced demand from India, influenced by Western sanctions, which has led to an accumulation of Russian oil in floating storage.

JPMorgan analysts, led by Natasha Kaneva, project that India’s imports of Russian crude will likely settle between 800,000 and 1 million barrels per day, accounting for 17-21% of its total crude consumption, following the new trade arrangement. This is a notable reduction from India’s peak Russian oil imports of around 2 million barrels per day last June.

China, particularly its independent refineries in Shandong province, is poised to benefit most from this shift. These refiners are absorbing a significant volume of the Russian oil that might otherwise be displaced, boosting their margins, operational throughput, and strategic stockpiles thanks to the deep discounts and supportive domestic policies, according to the analysts’ February 4 note.

Discounts for the ESPO Blend grade, shipped from Russia’s Pacific port of Kozmino to China, have widened to nearly $9 per barrel compared to ICE Brent futures this week, an increase from the $7-$8 range observed in recent months, trade sources stated. Concurrently, discounts for the Russian Urals grade, typically exported from the Baltic region to India, are hovering around $12 per barrel and could potentially widen further.

Chinese purchasers have been taking advantage of multi-year low discounts on Russian crude lately, leading some to reduce their intake of Iranian oil in favor of acquiring more Russian barrels, noted Vortexa analyst Emma Li. Given that India’s anticipated pullback is likely to spur even greater price reductions, this purchasing behavior is expected to continue in the near term.

Chinese independent refiners, often referred to as “teapots,” remain the principal buyers of sanctioned Russian oil. Russian crude volumes destined for the teapot hub in Shandong province reached record levels in January, according to Li. However, Chinese state-owned refiners have suspended their seaborne Russian purchases since October, following U.S. sanctions imposed on Russian producers Rosneft and Lukoil.

Despite strong absorption by independent refineries, analysts and traders suggest that China may have reached its import capacity limits for Russian crude if state refiners continue to abstain from the market. Kpler data indicates that China’s seaborne Russian crude imports surged to a record 1.7 million barrels per day in January, as India’s imports decreased to 1.1 million barrels per day, marking the lowest figure since November 2022. OilX reported China’s January imports at 1.64 million barrels per day, the highest since March 2024.

Analysts highlight that the independent Chinese refineries lack the infrastructure to process all the surplus Russian supply. “Amid rising onshore inventory, we expect Russian seaborne flows to China to decrease from March, following elevated levels of Jan-Feb 2026,” said Sun Jianan, a senior analyst with Energy Aspects. Emma Li of Vortexa added, “Without re-engagement from the state-owned majors, Russia is still facing an oversupplied market despite strong teapot absorption.”

Nonetheless, there is a prospect for increased demand, as CNPC reportedly plans to restart a unit at its refinery in Dalian around mid-year, aiming to capitalize on high profit margins from Russian crude.