Multiple sources said that several suppliers had cancelled sales to Yulong Petrochemical of Middle Eastern oil and Canadian crude after the UK imposed its sanctions. This is likely to force the refiner to purchase more Russian crude.

The refiner is China's latest with a daily capacity of 400,000 barrels and is one of China's biggest single Russian oil clients. It was designated by Britain last week as a way to reduce the oil revenues of Moscow that are used to finance the Ukraine War.

Sources said that suppliers are ending supply agreements with TotalEnergies, BP, Saudi Aramco, Kuwait Petroleum Corp. and PetroChina International.

The majority of cancellations are for spot cargoes due to be loaded after November 13 when the new sanctions come into effect. Three sources with knowledge of the deals say that they include two shipments each of 2 million barrels from Kuwait Petroleum or Aramco.

Two other sources with knowledge of the transactions said that both TotalEnergies and PetroChina International had completed transactions to supply Access Western Blend, an export from Canada heavy crude.

BP and Aramco refused to comment. KPC, Total PetroChina, and Yulong declined to comment.

Sources familiar with Trafigura's business with Yulong said it was not clear if the Swiss company would suspend its transactions. Trafigura provides Yulong 2 million barrels of Omani and Abu Dhabi Lower Zakum crude per month under an annual agreement, according to the sources.

In response to an inquiry about the supply contract, a Trafigura representative said: "Trafigura is compliant with all applicable laws and sanctions including the G7 price cap framework."

PIVOT TO RUSSIAN OPERA

Sources said that the decision to cancel contracts was partly based on concerns over the ability to pay, as western banks would avoid working with sanctioned companies.

Yulong is likely to buy more Russian crude oil as it has a limited supply of non-sanctioned oil. This already makes up about half its consumption.

Sun Jianan is an analyst at Energy Aspects. He said that Yulong has already begun to run a majority of barrels sanctioned, and this, like the sanctions impacting Nayara's production, could lead to a reduction in output.

After European Union sanctions in July, India's Nayara Energy - a company owned in part by Rosneft - has reduced the number of refinery runs. After Aramco, SOMO and Iraq's SOMO stopped selling oil to the company, it now imports all its oil from Russia.

A company executive who declined to name his company but whose company still supplies Yulong said that smaller companies with no UK connections may continue to do business.

According to traders and tanker tracking company Vortexa, Yulong purchases between 150,000 and 250,000 barrels of Russian crude per day.

Yulong imports ESPO blend from Russia's Pacific Coast, which is favored by Chinese refineries due to the short transit time for the shipments. Three traders who are familiar with Yulong’s purchasing patterns said that Yulong recently imported Urals crude oil from Russia's European port.

Two of these sources said that the majority of its Russian supplies comes from dealers who are linked to major Russian producers.

Yulong Petrochemical, a joint venture of the government-backed Shandong Energy Group and the private aluminium company Nanshan Group, is located on an artificial island near Yantai port in the northeastern Shandong province.

(source: Reuters)