Florence Tan and Chen Aizhu

SINGAPORE, (Reuters) – Six people spoke out to Reuters that China’s state oil refiners honor existing Russian oil contracts, but are avoiding newer ones despite high discounts. This is in response to Beijing’s warnings about Russia’s invasion of Ukraine.

The state-owned Sinopec (NYSE :), Asia’s biggest refiner CNOOC(NYSE :), PetroChina, and Sinochem have been unable to trade fresh Russian cargoes in May loadings.

Two people said that Chinese state-owned companies do not want to be perceived as supporting Moscow through buying more oil. This was after Washington bans Russian oil and the European Union placed sanctions on Gazprom and Rosneft (MCX:).

According to one person, “SOEs should be cautious since their actions may be seen as representative of China and no one wants to be considered as a buyer for Russian oil.”

Petrochina and Sinopec declined to comment. CNOOC or Sinochem didn’t immediately reply to my request for comment.

China and Russia have been developing closer ties over the years. In February, Russia announced an “no limitations” partnership. China, however, has not condemned Russia’s actions in Ukraine nor called it an invasion.

China has repeatedly criticized western sanctions against Russia. But, senior diplomats said that Beijing does not intend to bypass sanctions.

China, the world’s largest oil importer, is the top buyer of Russian crude at 1.6 million barrels per day, half of which is supplied via pipelines under government-to-government contracts.

Sources predict that China’s state-owned companies will honor their long-term, existing Russian oil contracts but avoid new spot deals.

China could see a drop in its imports from Russia oil, which would cause it to look for alternative resources. This is in addition to the global supply worries that drove benchmark prices up to $140/barrel in March 2014 after Russia’s invasion of Ukraine.

Brent futures fell to $110 after allies and the United States announced that they would be releasing strategic reserves stocks. [O/R]

‘RISK TROL AND COMPLIANCE VERY FIRST’

Before the Ukraine crisis, Russia supplied 15% of China’s oil imports – half of that via the East Siberian and Atasu-Alashankou pipelines and the rest by tankers from its Black Sea, Baltic Sea and Far East ports.

Unipec is the trading arm and largest Russian oil buyer of Sinopec. It has been warning its global teams in regular meetings over the past weeks about the dangers of dealing with Russian oil.

According to one source who had been briefed, “The tone and message are clear — risk control and compliance come before profits.”

Russian oil can be bought at a huge discount, but there are still many problems such as shipping insurance or payment issues.

Unipec also informed another source, who is a Russian refinery, that he needed to replace his equipment in order to continue normal operation.

Source said that besides the March shipment, which was due in April and has already arrived, no further Russian oil will be available going forward.

Unipec moved 500,000 tonnes Urals out of Russia’s Baltic ports to March. This was the largest volume for months. According to shipping and traders data, Unipec received a Rosneft export bid that Unipec won. The tender covered loadings from September 2021 through March 2022.

According to two traders who are familiar with the transactions, it will ship two Urals shipments in April from Surgutneftegaz. These shipments contain 200,000 tonnes.

According to Reuters, India, however, has booked more than 14 million barrels (or about 2,000,000 tonnes) of Russian oil so far since February 24, compared with nearly 16 million barrels for all of 2021.

Sources said that other state buyers – PetroChina and CNOOC – have resisted Russia’s ESPO mix for May loading.

According to the second source, Sinopec has been facing problems with payment even for earlier agreements. The reason is that Russian risk-averse banks are looking to decrease financing Russian oil-related contracts.

TEAPOTS KEEP DEALS “UNDER WRAPS”

Some independent refiners called teapots have been forced to disappear due to sanctions. They were once dynamic customers who ate about one-third of Russia’s oil imports from China.

The ESPO trade was slow and very secretive. While some deals may be made, the details of these transactions are not disclosed. Regular ESPO dealers said that nobody wants to be publically seen buying Russian oil.

These nimble refiners use alternative payment methods to keep the oil moving. They pay after each cargo has been delivered, using Chinese currency, and cash transfer.

Russian suppliers – Rosneft and Surgutneftegaz, Gazprom Neft and independent producers representing Swiss trader Paramount Energy – are set to deliver a record 3.3 Million tonnes of ESPO in May from Kozmino port.