Ellen Wald
30 March 2023
Photo: Tom Fisk |
- Western Europe's ban on Russian oil led to changes in the market, with Russia now top oil supplier to India and China
- Saudi Arabia increased exports to Europe but still bets on China for future demand
- Aramco's deals tie up more Saudi oil in long-term contracts in Asia, reducing U.S. influence
Western Europe’s ban on seaborne imports of Russian oil has
reorganized the oil market in significant ways. For example, Russia opened a new
market in India and quickly rose to become India’s top oil supplier. Russia was
already China’s second-largest crude oil supplier, but in January and February
rose to overtake Saudi Arabia to become China’s largest crude oil supplier. But
there are signs that Russian oil supremacy in Asia may not be designed to last.
Saudi Arabia has increased its oil and diesel exports to
Europe, but recent developments in the Saudi-Sino relationship make it clear
that Saudi Arabia is still betting on China as its most important source of
future demand.
There are several potential implications of this for
traders. The first is that Aramco (TADAWUL:2222) clearly does not see Europe as
a reliable customer in the medium to long term. Europe may return to buying
Russian crude oil due to ease of transport and has recently passed laws
designed to make it impossible for carmakers to sell cars that run on gasoline
or diesel.
The second is that traders should expect China’s industrial
demand for crude oil to increase in the coming months and years. Although much
of the focus for short-term demand has been on China’s consumers, industrial
demand should be expected to grow in the medium to long term.
Earlier this week, Saudi Aramco announced several new oil
deals with Chinese energy companies that would guarantee a market for an
additional 690,000 bpd of Saudi crude oil. Aramco acquired a 10% stake in
Rongsheng Petrochemical Co Ltd (SZ:002493), and the deal contains a provision
that Aramco will supply 480,000 bpd of crude oil to Zhejiang Petrochemical Corp
(SZ:002648) for the next 20 years.
In addition, Aramco and a JV it is involved in with two
Chinese companies, HAPCO, decided to develop a petrochemical complex in
northeast China to which Aramco will supply 210,000 bpd of crude oil. For
reference, in January, Aramco exported about 1.2 million bpd of crude oil to
China, according to TankerTankers.com. These deals represent a significant
increase in oil exports to China, although the petrochemical refinery is not
expected to be completed until 2026.
Geopolitically, the implications of this are important for
the U.S. With more Saudi oil now tied up in long-term contracts in Asia, U.S.
desires vis-a-vis oil prices and oil supply will be even less important.
Saudi Arabia, and by extension OPEC, will act in its best
interests, and those best interests are now ever more tied to China. Whereas
maintaining a good exporter-importer relationship between Saudi Arabia and the
U.S. used to be very important, Saudi Arabia’s relationship as an oil supplier
to China is now more important.
We should expect OPEC and Saudi Arabia to be ever more
attuned to economic and diplomatic signals from China as opposed to the United
States.
Source: https://bit.ly/40QAH6y
( https://uk.investing.com/ )
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