Juicy discounts: Russia is now China's largest oil supplier
Created: 06/21/2022, 08:40
By: Christiane Kuehl
Tankers in the oil port of Qingdao in the Chinese province of Shandong: refineries in the province are increasingly buying Russian crude oil.
© STR/China POUT/AFP
Russia's oil experts are back to pre-war levels.
Moscow can thank China, among others, for this.
The People's Republic is now ordering much more crude oil than before the Ukraine war.
Beijing/Munich – Russia and China are apparently expanding their raw materials partnership in the Ukraine war.
In May, Russia became China's largest supplier of crude oil.
In May, according to a report by the Reuters news agency, Moscow sold more oil to the People's Republic than ever before.
China imported almost two million barrels a day last month, 55 percent more than a year earlier.
Conversely, China has long been the largest buyer of Russian oil.
In the spring, shortly after the start of the war, Moscow had sent 1.6 million barrels a day to China - half of it by tankers and half by oil pipelines.
After initial reluctance, China has apparently decided to negotiate additional oil supplies with Russia – and at hefty price reductions.
Moscow grants this to all those countries that continue to buy raw materials such as oil and gas from it despite the war of aggression in Ukraine.
In addition to China, India in particular, but also Turkey and some African countries, purchase Russian oil at discount prices.
China is buying Russian crude oil at a 35 percent discount from the current world market price,
Bloomberg
recently reported, citing EU Trade Commissioner Valdis Dombrovskis.
"What we see is that China will take good advantage of this situation of Russia's weakness," Dombrovskis said.
This will be less beneficial for Russia.
Reuters reports on fresh oil contracts being signed quietly by various refiners behind the scenes.
Chinese refineries have been inquiring about possible additional deliveries since March - not only large state corporations like Sinopec, but also independent smaller refineries in the east Chinese coastal province of Shandong, a stronghold of the raw materials sector and heavy industry.
China and India are ready to buy oil from Russia - at special prices in the Ukraine war
The US has already imposed an embargo on Russian oil because of the invasion, and the EU also wants to cut imports by 90 percent.
But Europe is still buying oil from Russia;
China, India and the others are not violating sanctions.
But by doing so, they are helping Russia to offset losses from Western boycotts, effectively circumventing the embargoes – to their own good advantage.
Because the world market price for crude oil has risen so sharply as a result of the embargoes, Russia can afford to grant large discounts to friendly states.
Russia still sells its oil at the equivalent of around US$70 a barrel - higher than before the war, but well below the current price of Brent crude of around US$113 per barrel.
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According to Russian information, the export volume is back to pre-war levels after initial slumps as a result of the US embargo.
Deputy Prime Minister Alexander Novak said at an event in May that Russia will direct its oil to other markets, from where the EU states would then buy it more expensively.
Such announcements fueled the suspicion of some experts that China, for example, could become such a transshipment point for Russian oil that is resold – even if there are no concrete indications of this so far.
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Technically, it is relatively straightforward to divert deliveries by tanker - unlike pipeline oil.
But transportation is not the only problem in the business.
Oil refineries are often designed to process specific types of crude oil and typically cannot easily switch between them in a short period of time.
More and more western commodity traders who previously brokered Russian crude oil are also withdrawing from the business.
For a possible resale, however, China would need actors who are willing to touch Russian oil.
Citing port agencies, Bloomberg names several smaller firms that have come into play since the war began.
Litasco SA, a unit of Moscow-based producer Lukoil, has become the largest handler of Russian Ural crude oil, for example.
But whether China even wants to become a hub for the resale of Russian oil is completely unclear.
Instead of allowing Russian oil to seep onto world markets, China is using it to build its own onshore storage tanks for future emergencies, writes the US newspaper
Washington Post
.
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Some experts also question the sudden increase: the data is actually completely unclear.
The China expert Lauri Myllyvirta from the Center for Research on Energy and Clean Air in Helsinki, for example, has observed a gradual increase since February and suspects that some deliveries are only now being officially listed.
Myllyvirta does not expect a dramatic increase in Russian oil imports.
"China is already buying essentially as much as Russia can supply via pipelines to the Pacific and directly to China," he wrote on Twitter Monday.
China: Oil purchases from Russia do not make big noises
China apparently does not want to announce the oil purchases in Moscow, although there are currently no threats of secondary sanctions.
In contrast to India's state-owned oil refineries, which use public tenders to procure Russia's Ural crude oil, among other things, China's state-owned companies acted under the radar as much as possible, according to Bloomberg, citing traders.
In this area, too, China may be trying the balancing act between supporting Moscow and appearing neutral.
Hardly anyone believes that China is really neutral anyway.
State and party leader Xi Jinping once again assured Russia of his support in a telephone call with his counterpart Vladimir Putin last week - according to official information, among other things "on issues related to core interests and important concerns such as sovereignty and security".
Xi also wants to continue working normally with Russia.
No criticism of the Russian invasion or atrocities committed by Russian soldiers in Ukraine survived the conversation.
(ck)