Russian ESPO oil sellers seek record premiums as Gulf exports uncertain

SINGAPORE, Oct 23 (Reuters) - Russian oil sellers have raised ESPO Blend offers to China to record levels, supported by strong demand and higher freight costs driven by the Iran war, although some independent Chinese refiners may baulk as margins turn negative, traders said.

Far East ESPO Blend cargoes for end-December and January delivery have been offered at premiums above $25 a barrel to ICE Brent, with two offers heard above $30 a barrel delivered to China, traders said.

November and December cargoes were offered at premiums of $26-$27 a barrel, with a few remaining unsold, another trader said. Some market participants said sellers were testing buyers' appetite with the hefty offers amid disruptions to Middle East exports.

US President Donald Trump's announcement last Friday of a waiver on key sanctions against Russia also supported demand expectations, although details remain unclear, two traders said.

Russian oil has become more expensive for Asian buyers because it is priced against Brent, while most Middle East grades are linked to Dubai. Brent typically trades at a premium to Dubai, and that gap has widened. The Brent-Dubai spread settled at $5.05 a barrel on Thursday.

Oil prices rose on Friday, with Brent crude touching a more than five-month high of nearly $115 a barrel, after Houthi attacks in Saudi Arabia stoked concern over further disruption to energy supplies from the Middle East.

Two traders said Chinese refiners were still willing to pay premiums of $20 a barrel for ESPO Blend, but not the latest record high offer levels.

However, one recent deal by a large independent Chinese refiner for November and December cargoes was heard at premiums of $23-$26 a barrel to ICE Brent, a senior Chinese trader said, adding that smaller plants would lose money at those levels.

That compared with $12 premiums for November shipments Reuters reported in September.

ELEVATED FREIGHT RATES

Russian sellers say elevated freight rates have driven up ESPO prices and should be reflected in premiums. Aframax tanker rates from Kozmino to China briefly surged to $10 million per voyage in October before falling to about $2 million, a decline that could eventually pressure ESPO premiums lower, traders said.

Russian Urals oil prices recently weakened to parity with dated Brent and small discounts to the benchmark in some cases as top Asian clients - Indian refiners - were not able to pay such high prices and turned to alternatives.