China does not abandon Arabia for Russia

The world's largest oil exporter, Saudi Arabia, was once again the main crude oil supplier to the world's largest importer, China, beating its OPEC + partner, Russia, in first place for deliveries. in January and February 2022. However, China finds itself in the enviable situation of being literally inundated with oil from multiple sources.

Chinese crude oil imports from Russia fell by just over 9% in the first two months of this year, according to data from the Chinese General Administration of Customs cited by Reuters , as independent refineries cut back on purchases of crude oil. including one of their favorite blends, Russia's ESPO, due to the reduction in quotas and the crackdown on illegal practices by the Chinese authorities.

At this time, it is unclear how much Russian crude China will import, considering the fact that China is not moving away from Russian energy as most of the rest of the world already did after Putin's invasion of Ukraine. However, some large Chinese state-owned banks have stopped issuing dollar-denominated letters of credit for the physical purchase of Russian commodities. Unable to guarantee such letters of credit, some independent refineries, the so-called teapots, would have started looking for alternatives. On the other hand, China generally does not follow Western sanctions, as is the case with Iran, so it is likely to see an opportunity to grab heavily discounted Russian crude.

In January and February, Russia was replaced by Saudi Arabia as China's top oil supplier, after Russia was the main crude oil supplier to the world's top importer in December 2021. Chinese imports from Saudi Arabia reached a averaged 1.81 million barrels per day (bpd) equivalent in the first two months of 2022, down 3% yoy, according to Chinese customs data in tons converted to barrels by Reuters.

Imports from Russia stood at 1.57 million barrels per day, down 9.1% annually as Chinese teapots reduced overall imports. This is because the Chinese authorities at the end of last year granted 11% lower crude oil import quotas to independent refineries in the first batch of quotas for 2022. The government, intent on reforming the independent refining sector and cracking down on evasion tax and illicit practices of small private refiners, now allows its independent refineries to import 109 million tons of crude oil in the first batch for 2022, down 11% from the first batch of allowances granted for 2021. three largest private refineries in China – Zhejiang Petrolchemical, Hengli Petrolchemical and Shenghong Petrolchemical – together accounted for about 38% of all import quotas for the first part of the year according to a document seen by Reuters . This suggests that China is now favoring the granting of quotas to newer and more sophisticated private refineries while cracking down on smaller and more polluting independent refineries, some of which are being investigated for allegedly irregular tax and business practices.

In the coming months, however, China could buy more barrels of Russian crude oil at deep discounts granted by Moscow, which could make Russia again a major supplier of crude oil to the world's largest oil importer. Some Russian oil producers are reportedly selling crude oil to China without bank guarantees, which is unusual, but necessary, if you want to sell. For example, Russian oil company Surgutneftegaz continues to sell its oil to Chinese buyers even without bank guarantees, from which many banks withdrew after Western allies kicked several Russian banks out of the SWIFT system, Reuters said.

Oil traders steer clear of Russian crude after Western countries banned some Russian banks from SWIFT, while Russian producers were unable to sell their spot cargoes in European tenders because no one bid .

But in China, the trade continues, as Surgutneftegaz now allows Chinese customers to take oil without providing bank guarantees, so-called letters of credit, according to Reuters sources.

China probably won't be able to take all the crude that Western buyers and traders are avoiding right now, but it will likely benefit from discounted Russian barrels when they become available. Maybe some Saudi crude will be left over for Europe.

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The article China does not abandon Arabia for Russia comes from ScenariEconomici.it .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-cina-non-abbandona-larabia-per-la-russia/ on Wed, 23 Mar 2022 07:00:31 +0000.