Middle East oil exporters are increasing relying on China to buy its oil after the coronavirus pandemic obliterated demand and consumption in swaths of Europe and the United States [File: Bloomberg]The region's petro-states shipped about one in every three of their crude exports last month to the Asian country.
China is an ever-more important customer for Middle Eastern oil producers as they scramble to find buyers in the wake of the coronavirus.
The region's petro-states shipped about one in every three of their crude exports last month to the Asian country. That's the biggest proportion in at least 2-1/2 years, tanker tracking from six Persian Gulf nations show. Their push into China comes with its oil demand having all-but recovered from the pandemic. Consumption in swaths of Europe and the U.S. -- normally the other key importers -- is still down sharply.
China's heightened clout will be an important subplot in the coming days, when many of the largest producers are set to discuss whether to maintain their deepest-ever output curbs at an OPEC meeting.
"Middle Eastern producers don't have much choice now other than to direct their oil to China," said Carole Nakhle, chief executive of London-based consultancy Crystol Energy. It's still risky because anything that derails China's economic recovery from the virus could sap oil demand, she said.
In absolute terms, flows to China were almost unchanged in May even as total shipments slumped by about 4.5 million barrels a day.
Saudi Arabia, the world's top exporter, sold almost a third of its crude exports to China in May. The region's next-biggest producer, Iraq, sent around half its shipments to the country, a record.
China, where the virus emerged, is regaining its thirst for energy even while the pandemic continues to throttle consumption elsewhere. With the International Energy Agency predicting global crude demand will fall by about a tenth this year, Saudi Arabia and Russia corraled other members of OPEC into the most drastic output cuts in history.
The Organization of Petroleum Exporting Countries and partners are debating whether to extend their nearly 10 million barrels a day of cuts beyond June. A proposal to meet as early as Thursday has run into difficulty amid haggling over compliance with the cuts.
Increased Chinese purchases are helping push prices higher. Brent crude traded above $40 a barrel on Wednesday, double its level in late April, before slipping back as OPEC continued to deliberate over meeting dates. Oman's main grade traded over $40 a barrel this week for the first time in almost three months.
"The Chinese have been buying a lot of physical Oman crude, due to fact that it is highly blend-able, and Iraq's Basra Light," said Ahmed Mehdi, a research associate at the Oxford Institute for Energy Studies.
The Saudis, Kuwait and the United Arab Emirates all shipped more crude than ever to China in April, when they were pumping record or near-record amounts. A month later supplies to China were almost as large, despite the unprecedented reductions overall.
Saudi Arabia's lead over Iraq for Gulf sales to China slipped in May, according to tanker-tracking data compiled by Bloomberg. Iraq, the Saudis' biggest Persian Gulf rival for exports to China and India, pumped more than it pledged under the OPEC deal, according to Bloomberg data. The Saudis largely made their promised reductions and said they'll cut even more than agreed in June.
The export picture for June could show another decline in overall flows and there's no guarantee China will be immune. State oil producer Saudi Aramco has already indicated it will trim shipments to Asia as well as to the U.S. and Europe. Oil pricing for July, which Aramco may release this week, will indicate which markets the company is targeting for sales.
Tanker-tracking data are subject to change as vessels can switch locations and loadings can be canceled. Revisions in Iraq's exports to China now show it gaining ground on Saudi Arabia in April, a different picture than the data showed a month ago.
SOURCE: BLOOMBERG
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