Page 4 - FSUOGM Week 13

FSUOGM COMMENTARY FSUOGM
China capitalises on Saudi-
Russian price war
Russia’s Urals blend is now attractive in Asia, depsite the higher transportation costs
CHINA
WHAT:
The falling price of Urals has helped drive sales of Russian crude to China.
WHY:
Chinese refiners are using weaker prices to help balance out inventory losses and more expensive local crude supplies.
WHAT NEXT:
Purchases of Urals are likely to continue rising until a more competitive offer is made.
CHINA is reportedly buying record volumes of Russian oil, exploiting the collapse in fuel demand in Europe and a 20-year low in the price of Russia’s flagship Urals blend.
Chinese oil trading giant Unipec, a division of state-owned Sinopec Group, has purchased 800,000 tonnes of Urals loading from Baltic ports in the second half of this month, along with a further 500,000 tonnes loading in early April, Reuters reported on March 25. Several other Chinese refiners have also placed requests for the grade, sources told the news agency.
Typically, almost all of the oil China buys from Russia is ESPO blend, which is shipped to the country via pipeline and ports in the Russian Far East. Most Urals grade is, meanwhile, sold in Europe.
However, the sharp fall in the price of Urals as a result of plummeting fuel demand in Europe has now made it attractive in Asia, despite the higher transportation costs. The export price of Urals for delivery to Northwest Europe slumped almost 20% on March 30 to $13 per barrel – its lowest level since March 1999.
Russia is currently China’s second biggest oil supplier, with shipments totalling 1.71mn bar- rels per day (bpd) in the first two months of 2020, according to customs data, up 11% year on year. Its largest supplier is Saudi Arabia, which has launched a price war against Russia following the collapse of the OPEC+ pact on production cuts.
Price war
China, as the world’s largest oil importer, stands to gain from this war between its two top suppliers. Low prices will help its econ- omy recover from the coronavirus (COVID- 19) pandemic, and the latest Urals deliveries could indicate that Beijing is exploiting the oil price collapse to fill its strategic petroleum reserve (SPR).
Edinburgh-based Wood Mackenzie esti- mates that China’s strategic and commercial petroleum reserves could reach 1.15bn barrels in 2020, which is equal to 83 days of demand. This is up from 900mn in 2019 and only 200mn in 2014. It similarly took advantage of the last oil price crash in late 2014 to stock up on oil cheaply.
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w w w . N E W S B A S E . c o m Week 13 01•April•2020