Why Russia Beat Saudi Arabia As China’s No.1 Oil Supplier

Russia last year overtook Saudi Arabia as China’s biggest supplier of crude oil thanks in large part to increased demand from independent refineries, popularly called teapots. This is what statistics data released today by Beijing’s customs authority show.

The average daily amount that Russian companies exported to China in 2016 stood at 1.05 million barrels, up by 25 percent from 2015. Saudi Arabia’s average daily shipments to the world’s second-largest oil consumer were 1.02 million barrels daily in the period, an amount representing a slight 0.9-percent uptick on 2015.

Russia is likely to keep its place as top exporter to China this year as well, as long as demand from teapots remains intense: while China’s state oil companies are bound by long-term contracts with Saudi Arabia, the small refineries have taken advantage of more flexible export conditions offered by Russian exporters as well as from the proximity of Russia’s export network. The flagship in this network is the East Siberia-Pacific Ocean pipeline, which will see increased flows of crude this year to the East.

Besides the flow expansion plans for the ESPO pipeline, Russia will also benefit from a much lower production cut quota under its deal with OPEC from December, while Saudi Arabia will have to reduce its output by almost half a million barrels daily.

China’s total oil imports last year hit a new high, with foreign oil satisfying more than 64 percent of demand – a trend that is seen to continue over the next four years. In the 2015- 2020 five-year plan, total imports are projected to increase by 17 percent, mostly on the back of falling domestic output, itself a result of maturing fields and high production costs.

This year alone, according to state giant CNPC, domestic demand for crude will hit 12 million barrels daily, which would necessitate a 5.3-percent increase in imports.

By Irina Slav for Oilprice.com