RUSSIA is pushing its crude oil exports to the main big buyers of its hugely discounted oil, thereby overtaking any other producers. It is doing the same with India. Meanwhile, China is hitting its highest imports of crude oil, reaching more than 11. 4 million barrels per day last month. Its highest volume of imports was more than 2.6 million barrels per day, thereby taking over the number 1 position from Saudi Arabia, which is 2 million barrels per day and Russia, which is 2.2 million barrels per day.

China has been importing cheap oils from Russia, filling whatever storage is available to accommodate the cheap oils, perhaps knowing that such a price will not last. Or it could be based on some political lessons with the ongoing Russian war in Ukraine, or in consideration of future supply constraints with Saudi Arabia extending one million barrels in August, and Russia’s commitment in reducing its production by 500,000 barrels from August, thereby causing tightness in oil and anticipation of some shortages. This can explain the reason behind China heavily building up her capacity and making ullage for further storage for oil.

China can maximize its refining operation to produce more petroleum products for export with a profit of $4 per barrel over its imported crude oils from Russia. So far it is enjoying a competitive advantage over other petroleum products exporters, for sure. Perhaps, it will keep on importing Russian oils as long as the G7 sanctions remain, and help its economy rebounce and shift away from the phase of low growth. India is also taking such advantage of the cheap Russian oil to maximize its oil imports. It is importing oil at a price more than $9 cheaper for a barrel compared to the rest of the Arabian Gulf suppliers. Oil prices are slowly climbing up, standing at $80 a barrel today, which is a sign of tightness in the market in preparation for the winter period and the end of the driving season.

This comes along with the USA’s strategic reserve at its lowest since more than 40 years, as a result of USA administration’s use of it to reduce oil prices in the USA. This happened even though the strategic reserve should be used for emergency purposes only, instead of using it for political reasons for instance to bring down the price. The voters are certainly happy, but will it last long enough for next year’s election, with $3.50 per gallon compared to a high of $5 per gallon? Oil prices should go up in the coming months with OPEC+ cuts.

Russia’s commitment to 500,000 barrels per day will put pressure on supply at a time when the oil industry is preparing for winter months’ grade. Meanwhile, Europe has still not found a replacement for Russian gas, which adds more pressure on oil prices. As if this is not enough for oil supply, the USA administration is debating whether to stop selling any crude oil from its strategic supply to China. Certainly, the dominance of China in the energy market, with its 11.4 million barrels of buying cheap oils, will impact supply.

However, will it last? Maybe… as long as the current embargo on Russian oils is in place, and with a price tag of $60 per barrel and maybe lower to encourage more potential buyers, and with required refining capacity to convert crude oils to petroleum products for wider customers. Therefore, China and Russia are currently in dominance of the oil markets.

By Kamel Al-Harami
Independent Oil Analyst

Email: [email protected]