China established itself as the world’s largest importer of crude in January with shipments increasing by 19.4% year on year to a record high of 40.64 million tonnes (9.61 million bpd), according to the General Administration of Customs (GAC). Last month’s figure exceeded the March 2017 record high of 9.21 million bpd.
China’s crude imports during the whole of 2017 displaced the US as the world’s largest importer, the US Energy Information Administration (EIA) confirmed last week. According to EIA data, China imported an average of 8.4 million bpd compared with US imports of 7.9 million bpd. GAC data put Chinese imports for the year at 8.49 million bpd.
The administration noted that in terms of total petroleum and liquid fuel imports, China became the world’s largest net importer in 2013.
The EIA attributed China’s growing imports to new refinery capacity, strategic inventory stockpiling and declining domestic oil production, which in 2017 declined by 4% to 191.51 million tonnes (3.85 million bpd). Reports from China say authorities have boosted the crude oil import allocations for independent refiners and that state-owned refiners have maintained high throughput levels.
Asian forecasters expect China’s importers to average about 8.8 million bpd in February.
OPEC continued to be the main supplier of crude oil to China, accounting for 56% of imports, down from 67% in 2012, the EIA reported. That shift in market percentage during that time went to Russia and Brazil, with Russia’s share of China’s imports expanding from 9% to 14% and Brazil’s rising from 2% to 5%.
Russia has been China’s top crude oil supplier for the last two years, forcing OPEC leader Saudi Arabia out of the top spot. China imported 59.7 million tonnes (1.2 million bpd) of Russian oil in 2017 and that figure is expected to stay roughly the same in 2018. Russian exports will increase significantly with the opening in January of a second 15 million tpy (300,000 bpd) capacity pipeline that is part of the East Siberia-Pacific Ocean (ESPO) network.
State-run China New said imports of ESPO crude had risen to 2.41 million tonnes (568,000 bpd) in January, an increase of 66% year on year. The pipeline extends from the border town of Mohe to the northeastern city of Daqing. China plans to import Russian crude through the ESPO route at a rate of 600,000 bpd in 2018. In 2017, crude shipments exceeded the pipeline’s 300,000 bpd capacity, averaging 330,000 bpd.
Russia’s success at exporting crude to China has, however, left some European buyers of Russian crude disappointed with the quality they are now receiving, according to Reuters.
The agency reported because of Russia’s quest to acquire market share in China in competition to the US and OPEC, the quality of Russia’s Urals crude had deteriorated and European customers were reviewing their purchases and the price they are willing to pay. It said that some buyers were looking to renegotiate prices, while others were complaining that they were unable to refine current deliveries of Urals.
Urals Blend is mixed within Russia’s pipeline system and the quality depends on the combination of higher quality and lower quality darker oils. Reuters said data on Urals composition in recent shipments showed the standard was at the bottom end of the quality range. It also reported that the price of ESPO Blend was about US$3 per barrel higher than what Russia was earning from Urals in 2017.
Meanwhile, US exports to China are rising and averaged about 400,000 bpd in January. China is reported to be attracted to US crude by its price and the US is keen to sell oil to China in an effort to rebalance trade figures.
In a further development, China will launch its first crude oil future contract on the Shanghai International Energy Exchange on March 26. China has been planning the move for several years, but has been cautious about putting all the rules and regulations in place. The State Council recently approved the contract’s launch.
The contract will be a medium sour crude with an API gravity of 32 degrees and a 1.5% sulphur content, Platts reported. There will be seven deliverable grades included in the crude futures contract: Upper Zakum, Qatar Marine, Masila, Dubai, Oman, Basrah Light and Shengli.