Russian Oil to Dominate Chinese Market

The current situation on global oil market is conducive to Russia’s growing exports to the Chinese market. Russian exporters have seemed to take advantage of favorable circumstances, including recent crisis in Venezuela, anti-Iranian sanctions, U.S.-China trade war and attempt to influence the market by OPEC+ member states, which enabled them to become a key player in the Middle Kingdom. For the past several years, Russia’s oil firms have been doing increasingly well, although these are still U.S. companies that gain much more profits from such operations. In this case, the Kremlin’s hostility towards Washington will not translate into a direct oil war: Moscow is so attached to its considerable profits from selling “black gold” than it will not risk any actions aimed at damaging the U.S. shale oil industry.

SOURCE: GAZPROM-NEFT.COM

China’s administration recently announced trade data for 2018, according to which Russia had seemingly secured as a top crude oil supplier to the local market. In December 2018, imports from Russia reached 7.04 million tonnes, or 1.658 million barrels per day, up 40 percent from 5.03 million tonnes a year earlier. In 2018, Russian imports rose to 71.49 million tonnes, or 1.43 million bpd, up 19.7 percent from 59.7 million tonnes in 2017. Also, Saudi Arabia, which comes as Russia’s key ally in the global oil policy, increased oil supplies to China last year; nonetheless, Moscow’s lead over Riyadh in supplying China almost doubled to 295,000 bpd. In 2018, OPEC’s leader boosted shipments to China by 8.7 percent to 56.73 million tonnes, or 1.135 million bpd, compared to 2017.

U.S. shipments to China came in at zero in December while they are expected to be resumed in March 2019. Still, U.S. crude oil imports by China were up almost 25 percent, compared to 2017. Venezuelan oil supplies dropped by 24 percent in 2018 to 16.63 million tonnes, or 332,600 bpd. It was mostly due to a deep inflation crisis in the country, as a result of which production hit a record low amid a lack of investment, mismanagement and fleeing workers. Full year Iranian imports dropped to 29.274 million tonnes, or 585,475 bpd, down 20 percent from 2017. This primarily came as an aftermath of U.S. sanctions. Nevertheless, Russia’s strong position in the Chinese oil market does not result exclusively from geopolitical reasons, under which Beijing was forced to limit imports from Iran and Venezuela. Also, they are attributed to high turnovers noted by China’s private-owned refineries that are more likely to import Russian ESPO crude. Another reason is Rosneft’s expansive policy in the Middle Kingdom. Russia’s largest oil company secured new long-term supply deals with China’s state-run oil firms such as ChemChina and PetroChina.

Russia’s export development to China is generally in line with the bull market on the domestic oil market. The current situation is favorable for Russian exporters. In 2017, Russia and OPEC jointly agreed to cut oil output in order to boost its prices. As a result, an average Brent barrel price went up, from 30 to 60-85 dollars. Rocketing oil prices may appear profitable for the United States as it does not belong to a group of countries that intend to cut oil output. Quite the contrary, the U.S. oil production has sharply risen, overtaking Russia and Saudi Arabia and making the United States the world’s top crude producer. In addition, the country is likely to bet yet another record this year. With the shale oil production referred to as no longer profitable in the United States, an average oil barrel price should not exceed 40 dollars. Nevertheless, such a low price will not favor the Russian economy, either. Moscow is thus unlikely to start a price war with the United States. The price increase, which is due to the OPEC+ plans to cut oil output, will provide Russia’s state budget will some additional billions of dollars.

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