China’s crude oil purchases from Russia rose over 30 percent in March compared to the previous year as Saudi Arabia’s commodity imports shrank, according to Chinese customs data.
The mainland’s crude oil purchase increased 4.5 percent year on year to 9.68 million barrels per day (BPD) in March since refiners have taken advantage of low crude oil prices as the impact of new coronavirus (COVID-19) outbreak. Saudi’s oil shipment to China was 1.7 million BPD, down 1.73 million BPD from one year earlier.
Russia and KSA Dispute Cuts to Oil Output
Russia and Saudi were once engaged in oil price war after both refused to cut output, sending the crude price to the lowest level. However, both countries’ relations have improved as they agreed on a combined output slash with the Organization of Petroleum Exporting Countries with Russia or OPEC+.
Despite the agreement expected to take effect in May, many sources believe that the dispute between Riyadh and Moscow over oil production may continue.
Oil Prices Turn Negative
The abundant supply, followed by lower demand due to the pandemic, has shattered the commodity’s prices. On April 21, the price of the West Texas Intermediate (WTI) for the May shipment plunged below zero to -US$ 37.63 per barrel.
China’s Oil Imports from Russia and Saudi Arabia
In 2018, Russia shipped 1.4 million barrels per day of oil to China, accounting for 15 percent of the latter’s oil imports. In December 2018, China’s oil purchase from Russia jumped 40 percent to 1,658 million barrels per day, the data showed, as cited in Reuters.
From 2016 to 2018, Russia supplied 15.7 percent of China’s energy needs, surpassing Saudi Arabia and Angola, according to a report from the China Petroleum Enterprise Association, and a research center of the University of International Business and Economics as cited by Hellenicshippingnews.
However, Saudi Arabia is also one of the leading oil exporters to China, given that the kingdom supplied almost 47 percent of the mainland’s oil need in 2019, the official data stated.
In 2019, Saudi’s oil shipment to China reached 83.32 million tonnes or 1.67 million barrels per day. Russia came as the second-largest oil exporter to China, shipping 1.55 million barrels per day, up 9 percent from the previous year.
The 2019 Russia-China Energy Deal
In December 2019, Russia’s President Vladimir Putin and his Chinese counterpart Xi Jinping inaugurated the gas pipeline called the Power of Siberia.
Russia’s gas giant Gazprom and China’s National Petroleum Company (CNPC) signed the project in 2014. They agreed on a 30-year contract for the shipment of 38 billion meter cubic of natural gas a year to the mainland.
The Advantage of Russian Oil
Russian oil has several advantages as the pipeline networks that make the shipment faster and the price cheaper than its rivals, such as Saudi Arabia.
“Russian oil fields (are) connected to refineries in Europe and Asia and oil companies have long-term contracts with them,” as trader in the European oil market explained to Reuters.
Wang Yongzhong, an energy researcher, echoed the statement, saying that Russia’s oil supply is considered strategically safe and cost-efficient compared to that from the Middle East.
Western sanctions for six years have helped Russia’s oil firm to rely on local technology, meaning that all the liabilities and costs are in rubles, not the US dollar or Euro.
Russia’s rubles are not pinned to the U.S dollar, meaning that the currency generally slips when oil prices plunge. Such a fact boost domestic revenue from oil exports, as FT wrote.