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Saudi Arabia and Russia face China’s oil market share


China’s oil demand is growing with the reopening following Covid restrictions after nearly three years. Initial demand trends suggest the reopening is appropriate and kicking in, but analysts say it is China that will account for half of global oil demand growth this year, with total oil demand world record.

And while China’s oil demand is set to recover, the leaders of the OPEC+ group, Saudi Arabia and Russia, will compete to meet growing demand in the biggest crude importer. world.

Saudi Arabia sells its crude under long-term contracts, so it has a guaranteed share of the Chinese market. But Russia, which has pivoted to Asia to sell crude and fuel in the wake of Western sanctions, is lowering the price of its oil and may attract more Chinese buyers who don’t follow through on price ceilings. of the G7.

The Saudis are signaling expectations of a strong recovery in Chinese demand by unexpectedly raising prices for Asia. But these prices can’t compete with discounted Russian barrels, and Chinese buyers have the option of requesting the minimum volume allowed by Saudi Arabia under long-term contracts. debate.

This week, Saudi Arabia oil market surprise by raising the official selling price (OSP) of its flagship crude to Asia in March. Saudi Aramco raised its flagship Arab Light oil price to Asia for March shipments by $0.20/bbl to $2/bbl above the Dubai/Oman average, the benchmark oil of the Middle East is valued in Asia.

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The surprise price increase is Saudi Arabia’s first oil price increase in Asia since September and likely reflects Saudi Arabia’s expectation that demand in Asia will pick up from second quarter onwards.

It is not only Saudi Arabia that is optimistic about the recovery of Chinese oil demand.

The International Energy Agency (IEA) said the reopening is putting pressure on global oil demand and that half of demand growth this year will come from growth in Chinese consumption.

The agency said in Oil market report In January, global oil demand is expected to grow by 1.9 million barrels per day (bpd) in 2023, to a record 101.7 million bpd, with nearly half of the increase coming from China after the country lifted restrictions due to Covid-19.

“China will drive nearly half of this global demand growth even as the form and pace of its reopening remains uncertain,” the agency noted.

The IEA said the EU’s ban on Russian oil products – effective February 5 – could soon mean that “a well-supplied oil balance in early 2023 could quickly tightened as a result of Western sanctions affecting Russian exports,” the IEA said in a January report.

However, Russian exports to China are soaring to an estimated 2.03 million barrels per day (bpd) in January, up from 1.52 million bpd in December, according to Refinitiv Oil Research data. quoted by Reuters’ Russell. By comparison, China’s crude oil imports from Saudi Arabia averaged around 1.77 million bpd last month.

Huge state-owned Chinese companies, including PetroChina and CNOOC, have recently bought more Russian crude and may increase imports from Russia to meet demand for cheaper oil, according to a note on This week’s Energy Aspect. Bloomberg. If China begins to fill its reserves, Russian oil imports could rise to 2.5 million bpd, Bloomberg notes.

In addition, Russia has transfers most of its fuel oil and vacuum oil (VGO) exports to Asia and the Middle East even before the EU embargo on Russian petroleum products took effect on February 5. And independent refiners of China is currently Russia’s big buyer of fuel oil for processing into gasoline and diesel, due to cheap Russian products and the lack of crude oil import quotas for many private refineries, trade sources told Reuters.

With China reopening, Saudi Arabia will face stiffer competition from its OPEC+ partner, Russia, for market share in the world’s top crude oil importer.

By Tsvetana Paraskova for Oilprice.com

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