China would rather get its oil from Russia where it can pay with yuan
The pace of China’s crude oil imports and demand growth is one of the key pieces of data for the oil market and analysts to gauge global oil demand growth. Alongside India, China is the main driver of demand growth, making it a coveted destination for the biggest oil producers, especially those from the Middle East.
The better part of a year into the OPEC production cuts, China’s crude oil imports show how market shares have shifted, and who’s winning and who’s losing the Asian oil supply race while the cartel and its Russia-led allies are restricting production.
The biggest loser in the market share war for China is undoubtedly OPEC’s biggest producer and de facto leader, Saudi Arabia, which is leading the efforts to curtail supply and push oil prices up. The biggest winners within the production cut deal are Russia and Angola. The winners that aren’t part of the deal are the U.S. and Brazil, both of which have significantly raised their crude oil exports to China.
Chinese customs data offers a glimpse into how many barrels of oil the Saudis have given up in China in their quest to rebalance the market, Reuters columnist Clyde Russell writes.
Between January and August, Russia was the top oil supplier to China, followed by Angola and Saudi Arabia. Chinese imports from Russia rose by 13.2 percent to 1.16 million bpd in the first eight months of 2017. Imports from Angola jumped 16.6 percent to 1.05 million bpd, while imports from Saudi Arabia dropped 1.7 percent at 1.03 million bpd in January-August.
Russia had already overtaken Saudi Arabia as the single biggest Chinese oil supplier for 2016, but the OPEC cuts have made that Russian dominance more pronounced this year.
While the Saudis are cutting exports to some Asian buyers, Russia has raised its oil exports this year, Bloomberg data shows. Although Russia is also restricting output (by 300,000 bpd and from a post-Soviet high level), its global exports have exceeded the 2016 export level in each of the months through August this year.
In the Chinese market, Russia held the top supplier spot in August for a sixth consecutive month. In second place came Angola. And in third, Saudi Arabia, with sales down 16.2 percent compared to August last year, to around 861,200 bpd. Angola, for its part, saw its oil exports to China soar by almost 28 percent to 983,500 bpd, Chinese customs data shows.
China’s imports from Iran and Iraq also jumped in August. Iranian oil sales in China increased 5.45 percent to 786,720 bpd—the highest monthly level since 2006, Reuters Eikon data shows. Chinese August imports from Iraq surged 30 percent to 736,400 bpd.
The Saudi share of the Chinese market has markedly decreased in the summer months, after the Saudis started to drastically cut oil exports to select markets to speed up the clearing of the glut in the hope of lifting oil prices.
According to Bloomberg data, the Saudi share of China’s oil imports slumped to an average 11 percent between June and August this year, compared to a share of some 15 percent on average in 2015.
While OPEC members and Russia are battling to lure Chinese buyers, the outsiders to the deal—Brazil and the U.S.—have increased their sales to China. The lower supply from OPEC and the favorable price differentials have prompted Chinese buyers to increase intake of cargoes from North and South America.
Brazilian oil exports to China in January through August surged 41.8 percent to 480,000 bpd, while U.S. crude sales in China averaged 128,000 bpd—that’s more than a 1,000-percent surge, Reuters data shows.
According to EIA data, available up until July, China is the second largest buyer of U.S. crude this year, and in February and April the volume of U.S. exports to China even exceeded that of Canada.
The market share that Saudi Arabia has lost in China is a result of the Kingdom’s current policy to try to boost oil prices. But once the OPEC cuts end—and they will end sooner (March 2018) or later (end-2018)—the race for supplying the fastest-growing oil demand regions will begin in earnest again.
So Saudi Aramco is currently seeking deals with Chinese refineries to secure future exports. Aramco is pursuing a partnership with CNPC to own a share in the 260,000-bpd Anning refinery in the Yunnan province, plus a number of potential deals in the downstream.
Meanwhile, until OPEC cuts end, the Saudis may continue to sacrifice market shares for higher oil prices to support a higher valuation of Aramco in the upcoming IPO next year.
Source: Oil Price