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. Last Updated: 07/27/2016

China Buying More Russian Crude

SINGAPORE -- China Petroleum & Chemical Corp., Chinese Petroleum Corp. and other Asian refiners are boosting purchases of Russian crude oil as declining demand in Europe makes the oil cheaper than competing grades from the Middle East.

Asian refiners have bought as much as 2 million barrels of Russia's Urals crude oil for loading in March, the first Russian cargoes to be shipped to the region in more than four months, according to a survey of six trading companies in Asia.

The price of Urals crude oil has fallen as demand for heating fuel drops toward the end of the European winter and supplies of Iraqi crude oil increase. Higher Asian demand for Russian crude oil is helping to drive down prices of Oman and other Middle East grades, traders including Mitsui & Co.'s Dennis Kongsiri said.

"Oman prices have gone into deeper discounts and Russian Urals' presence is definitely one of the causes," said Kongsiri, vice president of Mitsui Energy Risk Management in Sydney.

Russia, the biggest oil exporter after Saudi Arabia, sells most of its output in the Mediterranean and northwest Europe.

The price of Urals crude oil has fallen 11 percent since Jan. 13 compared with an 8 percent drop in the price of Oman crude, according to Bloomberg data. That has made Urals cheaper for Asian buyers, even though the journey from the Black Sea is twice as long as the route used to ship oil from the Middle East.

While lower prices are boosting Asian demand for Urals crude, the region's refiners also buy Russian crude oil to help reduce their dependence on Middle East producers, which supply nine out of every 10 barrels of oil sold to Asia.

Chinese Petroleum, Taiwan's state-owned refiner, bought a Urals cargo at a premium of about $2.50 per barrel to Dubai prices because it was cheaper than Oman oil, said a company official, who asked not to be named. China Petroleum & Chemical, known as Sinopec, paid a lower premium for a smaller cargo, said a company official, who also asked not to be identified. The official did not give other details.

Asian refiners buy Urals and Oman because they are of similar quality. The crude oils are so-called medium-heavy grades, which means they yield a higher proportion of fuel oil and middle distillates than other types of crude oil when processed. Both crude oils have more than 1 percent sulfur content by weight.

Iraqi exports have quadrupled since July, when the country shipped its first cargoes since the end of the U.S.-led war. Iraq exported 1.73 million barrels per day in February 2003, the last full month before the war. Last month, exports rose to about 1.50 million barrels per day.

Competition from Russian and Iraqi oil has dragged down prices of Oman crude, which is used by refiners in China, South Korea, Thailand and Singapore.