New Oil Order: Russia Again Tops Saudi Arabia As China's Largest Crude Supplier

Tyler Durden's picture

Back in May, we noted that for the first time in history, Russia overtook Saudi Arabia as the number one supplier of crude to China. 

The implications of that should be clear, but in case they aren’t, allow us to elaborate.

First, Moscow is wrestling with crippling Western economic sanctions and building closer ties with Beijing is key to mitigating the pain. Part of the cooperation Russia seeks revolves around energy partnerships and while the Western media has endeavored to play down the arrangements (some of which have admittedly been beset with delays), the interest is there on both sides which means sooner or later, the deals will likely get done. 

From a geopolitical perspective (and as regular readers are acutely aware, geopolitics and energy are inextricably linked at almost every turn), there’s a degree to which the shift is symbolic. That is, we don’t think we’re reading too much into it when we draw a connection between Russia’s usurpation of the Saudis on China’s crude suppliers list and the fact that Beijing and Moscow have voted with each other on the Security Council as it relates to Syria, where Riyadh’s interests are sharply at odds with The Kremlin’s. 

Meanwhile, the Saudis are struggling to cope with the plunge in crude prices that they themselves engineered (they “Plaxico’d” themselves, as we’re fond of saying).

The proxy war in Yemen along with the cost of maintaining the everyday Saudi’s lifestyle doesn’t mix well with plunging oil as is abundantly clear from the following which shows that Riyadh is now facing a deficit on both the current and fiscal accounts.

And while Beijing’s demand for crude seems to be supported by a desire to stockpile while prices are low (see the rather strange price action on the Dubai spot market), the worry is that if China’s economy continues to decelerate, the Saudis will need to make up the slack somewhere else, and that’s led directly to Riyadh’s attempt to muscle in on Russia’s Eastern European customers. 

If the Saudis were to continue to lose market share in China, that dynamic would be amplified. 

Well don’t look now, but for the second time this year, Russia has surpassed Saudi Arabia as the top crude supplier to China. Here’s Bloomberg:

Russia beat Saudi Arabia to become the biggest seller of crude to China for the second time this year in the race to supply the world’s biggest energy consumer.

 

Asia’s largest economy bought a record 4.04 million metric tons of crude from Russia, or about 988,000 barrels a day, in September. That’s 42 percent more than a year earlier and 31 percent higher than in August, according to data from the General Administration of Customs in Beijing on Wednesday. Oman was the third-biggest supplier, behind Saudi Arabia, while Angola slipped to fourth place from second in the previous month.

 


 

China, the world’s second-biggest oil user, is buying near record amounts of crude from overseas as it seeks to take advantage of a plunge in prices to boost its stockpiles. The International Energy Agency estimates the nation will be responsible for more than a quarter of global consumption growth next year, making it a key battleground for producers seeking to defend market share amid a worldwide oversupply.

 

“The biggest battle to supply oil to China is between Russia and Saudi,” Gao Jian, an analyst at SCI International, a Shandong-based energy consultant, said by phone. “Russia is gaining momentum with its pipeline and buying interest for its crude from teapot refineries.”

 

A direct pipeline to northern China has boosted exports of East Siberia-Pacific Ocean crude. Seaborne shipments were also spurred by the proximity of the Kozmino port in Russia’s east to the Asian nation, while new rules allowing small independent refineries known as teapots to buy imported supplies have also helped sales.

But perhaps the most important thing to remember when considering all of the above is that from the start of 2015, Gazprom (which is Russia's third-largest producer) begin settling all crude sales to China in renminbi. 

In other words, September's data on Chinese crude imports means the dreaded petroyuan is indeed proliferating...

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Hopeless for Change's picture

Not a dry eye in the house for the "poor" Saudis...

Looney's picture

Meanwhile, King Salman and Erdogan are calling Putin…

This reminds me of the last scene from The Godfather, when everybody in the room started kissing the New Boss’ hand. ;-)

Looney

Canadian Dirtlump's picture

http://nypost.com/2015/10/21/saudi-prince-accused-of-gay-sex-threats-and...

 

I found this one more satisfying. Talking about the Prince's apparent predilictions for having people fart in his face and for him putting from the rough if you smell what I'm cooking.

JoeSexPack's picture

Rooskies found more oil by drilling deeper for oil than others.

 

Biotic theory holds oil is from dead bio-mass, dinosaurs & swamps, so will be closer to surface of earth.

Abiotic theory has oil made from geologic processes, non-bio, deep underground.

Since Russians are pumping oil from over 6 miles down, they may have a point. Be hard for dead dino's to sink 6 miles.

Congrats for thinking outside the box...

KnuckleDragger-X's picture

Everybody is choosing sides for the next round, but nobody wants the skinny mulatto from Chicago.....

SethDealer's picture

we need to control those russians with sanctions

MeetTozter's picture

The infidel goyim are running away from Petrodollar$'$

Dr. Engali's picture

Sounds like Russia needs some liberty bombs rained down on them.

Mewa's picture

Glad they finally came to the point...the US petrodollar is gone.....now comes the foreign bond dumping and that deflationary spiral reverts to hyperinflation.....after everyone is wiped out on the rigged stock and bond markets.....stay in cash, gold,, silver, and land (outside the US) cause the US steals everything.....

gcjohns1971's picture

Whether this is 'winning' the global energy price-war or whether it is 'losing' depends largely on the terms of the bilateral currency agreement and whether China is paying in its rapidly depreciating Yuan.

The oil and gas are real.

The Yuan becomes less real with each devaluation.

gcjohns1971's picture

On the 'Petro-Yuan'.

This seems a copy of the 'PetroDollar' system.

Except that doesn't seem to be working out so well... 

It has been something like using a nuclear bomb for heating your house:  Sure you stay warm for a time, but everything becomes increasingly radioactively toxic over time, the kids have become deformed, and eventually it is obvious that the bomb is going to explode, yet there is no easy way to replace it.

That would not be the first monetary system I would expect someone to try and copy.

Of course...if they only wanted the same opportunities to skim that the PetroDollar afforded Washington...well then, they may get 30-40 years out of that before it explodes.

And it would be prudent for Russia to wonder whether it was Saudi Arabia, or whether it was Washington, who benefited most from the PetroDollar.

And it would be prudent for China to wonder the same.

The reality such schemes are distortionary.

Which means that they bring wealth forward in time at net cost of some economic destruction.

If your timeline is longer than the lifecycle of such a system...it isn't a good deal.

 

gcjohns1971's picture

I am saying that Russia is either wrong about the US Monetary system (I think they're right.)

Or they are wrong to attempt to copy it.

Lucky Leprachaun's picture

Presumably you mean it's a risk for Russia (your comment not clear on this). I don't see it this way as Russia could immediately recycle its renmimbi receipts into Chinese goods and services.

gcjohns1971's picture

It seems that the Petro Dollar critics all become PetroDollar fans if the system is operated by Russia!!!

 

That's hilarious!!

 

And proof that their interest is in nationalist promotion, not effectiveness!!!!

Otherwise why advertise that a system is broken???

And then try to copy it?

 

So....they're saying they want to be broken in the same way the US is??

I am confused!!!

(Or they are.)

message's picture

China always will buy cheap oil - if there is an idiot putin that sells oil so cheap - why not buy it from that guy? :D

farflungstar's picture

So cheap and yet the Ukraine doesn't wanna pay! Fucking useless deadbeats.

Omen IV's picture

With 20% GDP deficit funding from reserves as reported  - the $$$ pile is finished in 5 years - less than half that time - SA  - if China keeps up the pressure - will be out of the terrorist funding business and suing for peace. The Prince(s)demands will be  - leave us alone - problem is the Sunni outside of SA are all armed and the land mass is biggest in ME - where is easiest pickings?

Iran / Iraq are - 77+ 33 mm or  110 million people  versus SA at 28 million but only 20 million are citizens.

5 to ONE in people - plus reserves of Iraq + Iran  ($$$$) + Serious Management  provided by General Soleimani + Putin / Lavrov = The Winners = Iran and the muslim people in the M East!  from Afghanistan to Gaza - Shiite control -Sunni's go to SA to find binders full of women

Israel needs Putin for protection not USA

the most hated party in ME has no negotiator - no credibility - no belief that US will not fuck you on the next dice roll with loaded dice so no point in talking - sure drop 50 tons of stuff but hold back real support for the Kurds so that Erdogan isnt too upset - end game Kurds will go sooner or later with Iran and carve out their piece

 

No what we are witnessing are a bunch of people going to cocktail parties in DC and stroking each other for years and years - got away with mass murder and organized crime and now the chickens coming home to roost. do you remember the scene in Godfather II when Batista passes the gold phone from ITT around the table and the next scene is the swells running from the ballroom to save themselves as Castro rolls into Havana. we are close.

 

as the Man said a few weeks ago: Do You know what you have done?

 

 

 

Oldballplayer's picture

Seems to me that I recall reading that Russia needs oil in the $60's to break even.  Even if that is not right, it certainly needs oil higher than $44.

Let me think how this might work.

Russia needs it to go up.

Fear and Supply Shortage would cause the price to go up.

Therefore, if Russia could cause the supply to go down or fear to go up they might just be able to get the price of oil to go up.

I wonder how Russia could make that happen?  I wonder if Iran on their northern border, or ISIL on their norther border or Iranian Yemenis controlling the southermn border would cause the Saudis to do something, anything, to drop production.

I wonder how Russia would do something like that?

I wonder if we will see the King of Jordan in Moscow anytime soon?

Bankster Kibble's picture

Factor into all of that a severe downgrade in the ruble vs dollar.  If the oil was priced in petrodollars the Russians would be toast.  But in renminbi or rubles, the Russians can still pump oil through those pipelines they just constructed last year.  China can still get a deal even if they pay slightly more to Russia than to Saudi Arabia, because piped oil is cheaper to deliver than shipped oil.

But as you say, the Russian budget is pinched.  Putin said the falling oil prices had a much bigger effect on Russian finances than any of the sanctions did.

dustyfin's picture

The Russian state budget is now predicated on $50 oil at the current exchange rate.

orangegeek's picture

Two nasty communist fucks doing business together.  Hell, what could wrong???  LMFAO!!!!

Jack Daniels Esq's picture

Dumb black muslim blew-off Vlad - payback is a bitch

TRM's picture

Next up India!!!

Vlad: Hey India, do you see what we are doing with China and do you want to do business with us that way?

India: Yea that Ruble to Renminbi direct trade without US dollars saves a ton of money on the middle man. Sign us up for Ruble to Rupee.

Vlad: Okay and we'll need to build a pipeline so that the USA can't interfere with shipments during a "crisis" like they could on the oceans.

jtg's picture

Western sanctions are not crippling Russia, in fact it is spurring Russia on to sufficiency from the West and integrating with the East (SCO and BRICS).

With sanctions the West is bringing on what it fears most: Russia integrating with China.

starman's picture

Better start learning Russian and Chinese! 

onmail1's picture

Ultimately BRICS will replace OPEC as the prominent oil & gas supplier

& a boot in the a$$ to the west

petrodollar gone