"Saudi Market Share Isn’t Threatened"
In January 2018, Chinese imports of US crude oil hit record highs. This touched off a frenzy in the Western oil media, with claims that the crude oil imports from the USA had pushed Saudi Arabia down to fourth place on the list of China’s crude oil suppliers.
Of course, this is fake news because the fact is that Saudi Arabia’s crude oil supplies to China have remained at near consistent levels year-on-year. In January 2018, Saudi Arabia provided 1.01 million barrels per day to China. In the first half of 2017, Saudi Arabia provided 1.07 million barrels per day to China.
The increase in US oil exports to China seem high in percentage terms, but are paltry compared to other suppliers. In the first half of 2017, China imported 123,500 bpd from the US. In January 2018 that number increased to 472,508 bpd. That’s nearly a 300 percent increase - but in real terms just 349,008 bpd - leaving the USA in 8th place on the list of oil suppliers to China.
At the top of the list for China’s suppliers is Russia with 1.3 million barrels per day. Angola was second with 1.1 million barrels per day, Iraq was third with 1.05 million barrels. This is attributed to encouraging more Chinese independent refiners to import crude oil. Smaller refiners in east China prefer Russia’s main export grade (ESPO blend). The Russians also ship with smaller cargoes and no requirement for long-term contracts. Additionally, Russian exports to the world’s largest crude oil buyer are increasing as a second East Siberia-Pacific Ocean (ESPO) pipeline, as well as expanded domestic connections in China, started commercial operation in January, hence, China can now import about 600,000 bpd of Russian ESPO crude via pipeline – double the capacity before the second pipeline opened.
Saudi Arabia imports to China only through Chinese oil majors with long-term contracts utilizing very large crude carriers (VLCCs) and destination limits. Yet, it is expected that crude oil exports from Saudi Arabia to China to rise to record levels in 2018 as Saudi Aramco ramps up supplies to Chinese state oil firm CNOOC, as well as the Huajin refinery owned by defense giant NORINCO. That Saudi Arabia is a top crude oil supplier to China represents its marketing power and primary role in oil markets.
Western oil publications didn’t write any major headlines about the ranking of China’s oil suppliers in October 2017, when Russia topped China’s crude suppliers, shipping 1.099 million barrels per day while Saudi Arabia came second, with only a few thousand barrels less at 1.091 million barrels per day. Angola came third with 843,000 barrels per day and Iraq came 5th with 626,000. The US was ranked in 10th place with 208,000 barrels per day. It seems the Western oil media didn’t find much to write about, although it was almost a 70% increase on the USA’s numbers from the first half of 2017. But no exaggerated headlines were thrown about.
The truth is that despite the increase in US crude oil exports to Asia in a relatively short span, and even if they are most likely to be boosted further, US crude oil exports won’t by any means affect Saudi market-share in the region. Saudi Arabia is a major, key supplier to Asia. It is still holding on to strong marketing strategies even while it is managing a 41% OPEC output cut although it produces 31% of OPEC’s total production. The Kingdom cut nearly 500,000 bpd from its total production of 10.5 million barrels per day. Russia’s output cut is 300,000 barrels per day and it produces 11.3 million barrels per day.
The surge in US oil exports is coming about due to the lifting of the ban on the export of US crude. In place from 1975 through 2015, US Federal law did not allow US suppliers to export to any nation but Canada. The widening Brent/WTI spread throughout 2017 and 2018 helped the attractiveness of US Shale Oil prices, which are linked to WTI. Additionally, infrastructure has been completed to enable Louisiana Offshore Oil Port (LOOP) to load Very Large Crude Carriers (VLCCs), which will help to reduce freight costs.
In conclusion, the Western oil media is not consistent in delivering reports. They take advantage of their global reach in putting out sensationalized articles that lack real substance.
Dr. Faisal Mrza
@faisalmrza
Energy and Oil Marketing Adviser (Former OPEC / Saudi Aramco)