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China Could Hold Oil Market To Ransom, Tops US As World's Largest Importer
For the first time in history, China overtook the US as the world’s biggest importer of crude oil in April, as The FT reports, representing the culmination of a seismic shift in global energy flows over the past decade. The jump in China imports last month was partly down to higher shipments from Iran, who "may be offering more discounts on its oil as part of an effort to increase ties with Chinese oil companies," according to consultancy Energy Aspects. "Iran is keen to secure more Chinese investment." But as OilPrice.com's Jim Hinton warns this shift means that China could hold the oil markets to ransom... And that means that oil futures are tied intimately in with China and the future of the South China Sea.
As The FT reports, while China’s imports are not expected to consistently surpass those of the US until the second half of this year, the move illustrates how the US shale revolution has cut the country’s reliance on oil from overseas — and how China’s demand has grown even as its economy slows.
Colin Fenton, managing partner at Blacklight Research, said China’s imports increased as it stockpiled oil. “It’s begun,” Mr Fenton said. “China’s crude imports have been above trend in four of the past five months.”
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But the long-term trend is in China’s favour. The country is adding more refining capacity with its economy still growing at more than 7 per cent a year.
In 2013 China overtook the US in combined imports of crude and refined oil products like gasoline and diesel.
“The world has a lot of oil,” one senior trader at a Chinese firm said. “And we need a lot of oil.”
Traders say China no longer passively accepts the prevailing market price, but is intimately involved in how it is set. How much oil it buys from West Africa or the Middle East affects prices from Europe to the US Gulf Coast, and is now as closely-watched as weekly US government data on energy supplies was a decade ago.
But as OilPrice.com's Jim Hinton reports, this shift means that China could hold the oil markets to ransom...
There is a tendency to think that the cost of oil is, by and large, a Middle East thing. When investors playing the stock market are chewing their nails over their dividends, and futures traders are in a flurry of buying and selling, the oft sited source of the volatility is the latest news out of the Persian Gulf. When thinking about oil prices, China is often misunderstood in the equation.
Oh, sure, plenty of people are aware of the impact China has as an importer of oil. China has a voracious appetite for oil. China imported 6.3 million barrels of oil a day in March, second only to the U.S. in volume on the world market. This was a six percent drop from February, a difference that had a significant impact on investors and futures traders everywhere. That much is obvious.
But people tend to forget to calculate into their thought processes the impact China has on the South China Sea.
Let’s set aside long term considerations. Even though it is estimated that the South China Sea is sitting on top of 28 billion barrels of oil, it will be a while before those reserves start producing in bulk. Instead, we need to focus on the short term, and in fact, day to day impact China can have on oil prices via the South China Sea right away.
Currently, 10 million barrels of crude flow through the Strait of Malacca alone. Most of this oil is headed into the South China Sea, bound for ports in China, Japan, Korea, the U.S., and Canada. This means that any potential threats to the South China Sea are potential threats to anyone dependent on the oil running through it.
Earlier this month the ASEAN nations sent China a stinging rebuke over creating a situation that does exactly that. China’s construction of artificial islands in the South China Sea are seen by everyone (but China, officially) as nothing short of a land grab intended to give China near-exclusive control over the resources, including shipping lanes, of the entire region. China has, of course, denied any such thing. These actions being called out by ASEAN come in spite of the principle of Freedom of the Seas and International Maritime Trade law.
The reality of it, however, is that the recent history of the South China Sea, China, and international shipping have China acting as anything but a peaceful neighbor. It was only a year ago that China seized a Japanese ship during a dispute going back to the days before WWII. Though this action took place in a Chinese port and not on the open sea, only a month later a Vietnamese fishing trawler was rammed and sunk by a Chinese patrol boat in the South China Sea. During the following months several more vessels were damaged or sunk in this fashion.
This has significant implications for oil prices. If an incident relating to Chinese ambitions in the South China Sea results in further confrontation in the open waters, it could escalate within hours into harassment or even seizure of tankers as they transit through the area. At 10 million barrels a day entering the region through the Malacca Strait alone, costing $59 US a barrel at the time of writing, that means China has a $590 million dollar hostage it could potentially mess with at any given moment if it feels its interests in the South China Sea are threatened.
And that means that oil futures are tied intimately in with China and the future of the South China Sea.
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Kinda fucks the petrodollar, too, doesn't it?
"with its economy still growing at more than 7 per cent a year."
Suuuuuuuuuure!
That's where I stopped reading.
What if :
Lets say that R thalked with C and said: dat stuf could be cheaper, how?
Just leak some document to the effect that they suggest that the Putin regime change is iminent if only the price of oil will go down.
The first thing that China is likely to do is tell the Saudis that, as your largest customer, we will now start paying you in RMB not Dollars. So, yes, that does kind of put an end to the Petrodollar doesn't it?
sure, if China wants to devalue its currency and ruin its RMB peg, they'll do just that... gee, why didn't they think of that, they should put you in charge...
They don't need to do that. All Fiat is just paper and only as good as a promise. Just like USD. Ithink, actually, you mean that China would need to REVALUE its currency, not devalue it because any overt move by China to freely float the RMB and establish it as a reserve currency would place substantial upward pressure on RMB which would be inconsistent with a peg.
At least get your facts straight?
my favorite....but as oil"price".com's jim hinton "reports???" jimmy goes on to use the word "RANSOM" and oil markets in the same article. hey jimmy, why is not the boom in u.s. production some sort of extortion of the oil market. good grief......couldn't help but notice that the crap articles from the "PRICE" oil.com boys were getting hammered with low votes. now we have links to their articles and quotes from their articles but not the articles themselves?????? what's up with that???
Advanced economies oil demand has been collapsing since '07...and now BRICS oil demand appears to be rolling over as well...
'00 til present, Chinese oil demand rose 120% on an increase in Chinese credit of 1,300% ($2 T to $28 T)...and now the Chinese housing bubble has popped and Chinese oil demand is set to stall and maybe outright fall.
http://econimica.blogspot.com/2015/04/how-peaking-global-crude-oil-production.html
Bullshit. China's energy needs means any strait the oil flows through is potentially a problem bottleneck.
I thought China already passed the US on just about everything already last year and the year before. I think they're just running extra laps to show off now.
don't worry, usa can go to the new low level
Current account surplus is the engine that allows you to dominate world trade.
And in that game Germany is first and China not far behind... the rest of the world has not understood who the two engines of world trade are.
Those who have SURPLUSES will define the RULES of the game tomorrow.
WIth PETRODOLLAR now in jeopardy OPENLY--witness Saud's refusal to come bend KNEE to Potus at Camp David summit-- and you can see that its not the USA which will define the contours of tomorrow's world order unless they pull the ARMS bazaar plug on the REFUSNIK axis in the making : Russia/China/Iran and who knows all those other Asian and BRIC countries grouping up with Germany NOW LOOKING BOTH WAYS; East as West!
We are entering TIPPING TIMES as the Oil world splits amongst those who have HI-COST fossil resources and those who have cheap ones...
Yes, Trade surpluses and momentary cheap oil surpluses can be very YIN and YANG!
As opposites do attract; thats what makes the world go round and Lithium batteries attract the paradigm change !
Actually it's high cost everywere. The "cheap" ones don't have any other economy and so rely on oil for running their govts and that raises their price of production. It's no coincidence that the change in the Saudi govt, the fight in Yemen and the price of oil are rising together. The Saudi leaders are discovering that their marginal production isn' t much use in moving the price in the downward direction. They are flat out and the world continues to use more oil.
The Party goes on!
Today again a small Bond Crash: Germany / Deutschland 5 years + 68%
http://pigbonds.info/
Yea japan too. Its bizy here tonight peeps nervous tonight. Got that anxious energy going on...
Seen the dollar this evening.. Splat
Had another massive earthquake near Mt Everest again. I didn't look how deep it was as damage reported was minimal.
Lots of stuff to be nervous about tonight. They gave up trying to spin things on the TV.
Heard Greece is taking money from June owed to imf to pay the payment they just anti'd up....
Well I'm going to bed now.... Night night.
Australia too.
What's the point of the article, that China is dangerous? When the US was dominating world imports, were we holding the world at ransom? This piece has a whiff of MIC zionist to it.
China a peaceful neighbor????? This author is high on drugs or something.
In the 80's, there was an armed confrontation with Vietnam & over 30 Vietnamese sailors were killed. Also, harrassing Philippino fishermen is a daily occurence.
LOL a raindrop compared to how many folks the USA military has snuffed out including women and children.
The dumb black muslim is the Ayatollah's top bath-house cocksucker
Interesting to note that this was already announced in October 2013 :
http://www.bbc.com/news/business-24475934
The country's fast-growing economy, as well as the rise in car sales, has led to its new status, according to September's data.
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Is Cushing full yet? When will we get $20 oil? See how stupid and short sighted those articles were? Better quit mocking shale producers as fools and start thanking us that you have gasoline at a decent price for your car to run and the trucks to bring food to the stores near you.
Last week as I pointed out, the US imported 905kbbl/day less than the previous week, only 6.5mmbll/day while China averaged 7.4mmbbl/day for the month of April. The trend could easily continue with the price of oil continuing to climb.
Oh yeah didn't China stock up when prices were dropping last fall. Think they might own some of what is stored at Cushing?
The number of people who have an intimate knowledge of the setting of cash crude prices is very very small I'd wager. Closed door, face to face negotiations where there is crony-like give and take won't be broadcast to a wider audience. By the way , sitting on crude oil already produced is not helpful for putting money into the till.
so tell me which part of the "silk road" is more important again? is it the part that runs on water or dirt? looks like water to me... so, US Navy is irrelevant how? yeah, thought so...
I don't think supply or demand have much bearing on oil or other commodity prices anymore. As long as hypothication and money printing are at the disposal of the western central planners, the commodity will be parked at whatever price they wish. This is why I am anxious to see a competing clearing system being developed by the BRICS countries. Hopefully this competition will bring some honesty and integrity to the commodity marketplace. We'll see.....
This is BS. The ULCC and the VLCC tankers cannot use the Malacca straits already, as the Malacca straits is too shallow. Most of the oil goes already goes through the Lombok Strait. It only adds three days to the voyage.