China in talks to buy Russian oil for strategic reserves

China is considering buying Russian oil to shore up its strategic reserves, according to analysts and officials quoted by Bloomberg and Reuters.

The crude would be used to fill China's strategic petroleum reserves, and talks are being conducted at a government level with little direct involvement from oil companies, Bloomberg reported, citing one person with knowledge of the plan.

The reports came as the US announced plans of potentially imposing secondary sanctions on Russia, and oil dropped in mid-morning Asian trade amid easing concerns of a sharp cutback in Russian crude exports.

At 11:26 am Singapore time (0326 GMT), the ICE July Brent futures contract fell 82 cents/b (0.73 percent) from the previous close at $111.22/b, while the NYMEX June light sweet crude contract tumbled $1.25/b (1.11 percent) at $110.96/b.

On Thursday, Russian deputy prime minister Alexander Novak said that Moscow would redirect European crude exports to other markets in Asia if the EU imposed an oil embargo.

Nevertheless, a reduction in Chinese crude exports has also been a key driver in tightening global refined product supply.

“This reduction in Chinese exports is more likely structural, with China wanting to drive consolidation within the domestic refining industry and cut emissions, which suggests that the tightness in refined markets is unlikely to disappear anytime soon,” ING analysts Warren Patterson and Wenyu Yao told Reuters.

The United States banned imports of Russian oil shortly after Moscow's invasion of Ukraine, while the European Union is considering a phased embargo, pushing more Russian oil cargoes towards Asia.