- Maxim Shipenkov/Pool/Reuters
Russia just one-upped Saudi Arabia in China again.
The latest customs data, from April, shows that Moscow was Beijing’s largest monthly crude-oil supplier for the second time in 2016, according to Reuters.
Chinese crude imports from Russia in April rose to 1.17 million barrels a day, a whopping 52.4% increase from April 2015.
Imports from Saudi Arabia came in at 1 million barrels a day in April, a 21.8% year-over-year drop. Saudi imports, however, increased by about 75,000 barrels a day from March.
A trader with a Chinese company told Reuters that “the record high import volumes from Russia were likely fueled by independent refiners, who are storing oil that they had earlier purchased at lower flat prices.”
Another trader added that imports from Russia were likely to drop in June, however, given that independent refineries in China will start to reduce purchases because of the higher oil prices.
Back in February, the Russians and the Saudis were neck and neck for the lead in the Chinese market, as both captured about 13% to 14% of total Chinese crude imports.
At the time, RBC Capital Markets commodity strategist Michael Tran argued that Russia had become the “biggest rival to the Saudis in the single-largest oil demand growth country in the world” – aka China.
“Is there a sense of urgency from the Saudis? You bet,” he wrote in a note to clients back then.
Interestingly, back in 2015, analysts had attributed part of Russia’s success in China to its willingness to accept Chinese yuan-denominated payments for its oil. (Rather than, as others have suggested, because of some sort of allegiance to the Chinese-Russian friendship.)
“If Saudi Arabia wants to recapture its number one ranking, it needs to accept the renminbi for oil payments instead of just the dollar,”Gordon Kwan, the Hong Kong-based head of regional oil and gas research at Nomura, told Bloombergback in June when the Russian imports first eclipsed those of the Saudis.
- AP/Hasan Jamali
Taking a step back from the month-to-month analysis, it’s also interesting to consider how the Saudi-Russian relationship has evolved over the past two years.
In the spring of 2015, OPEC officials repeatedly suggested that they might cut production if Russia were willing to cooperate – but the Russians weren’t too keen on joining a coordinated cut at the time. Fast-forward to 2016, and the Russians seemed interested in a coordinated move, but then the Saudis switched gears at the last minute and opted for no production freeze at a meeting in Doha, Qatar.
And that seems to have dampened any serious hopes for a synchronized move the immediate future.
“I think we shouldn’t have any hopes that the Russians will be incentivized to go back for any type of – they’re not going to take that olive branch again,” Helima Croft of RBC Capital Markets told Business Insider in an interview on Tuesday.
“But, luckily, Putin had based his budget report on $50/barrel – and we’re pretty close,” she added. “I think the Russians also think that the simple discussion of a freeze really helped get this rally going. So, they’re thinking, maybe we don’t have to do much anyway – Nigeria will do it for us.”
Brent crude oil is up 1.4% at $49.30 a barrel.