Crude Slides To $44 Handle On OPEC Supply Concerns, Fears China Could De-Rail The Russia/Saudi Oil Deal?

Tyler Durden's picture

Submitted by Rakesh Upadhyay via OilPrice.com,

China, the world’s largest oil consumer, has been increasing oil imports and feasting on the low crude oil prices. Could Russia and Saudi Arabia’s plan to stabilize crude oil prices cut into China’s oil hoarding plans?

Chinese oil imports have increased to 32.85 million tons in August, the second highest figure after the record 33.19 million tons import figures of December 2015. It’s a 7 percent increase over the same period last year, and a 6 percent increase over July. Currently, the Asian giant imports 66 percent of its crude oil requirements.

“Chinese oil majors are no longer under orders to increase domestic production, as they were doing so at a loss,” said Adam Ritchie, executive general manager for supply at Caltex Australia Ltd. “China’s change to let economics decide between imports and domestic production is a big change,” reports Bloomberg.

Russia and Saudi Arabia, the two largest suppliers, have been battling it out to increase their market share in China. While Russia has increased its market share in China from 12.6 percent last year to 13.6 percent this year, Saudi’s have seen their share dip from 15.1 percent to 14 percent during the same period.

“There’s a market-share battle going on mainly among the Middle East producers and Russia,” Olivier Jakob, managing director of Petromatrix, said by phone from Zug, Switzerland. “Rivals are making a big push into China,” reports Bloomberg.

An agreement between both the competing producer nations reduces the bargaining power of the Chinese refiners, who had started to choose the spot sales offered by Russia against the long-term contracts policy of Saudi Arabia.

Nevertheless, the Chinese can breathe easy, because like many other experts globally, even the Chinese analysts are not confident that the deal between Saudi Arabia and Russia will result in any substantive action.

"It will be very difficult to implement this agreement, as the volume for each exporter country is different. Many countries - producers of oil and gas rely on exports, so they are unlikely to agree to the terms of the agreement," a senior consultant for Sinopec Yang Qixi said.

However, Saudi Arabia’s Minister of Energy, Industry and Mineral Resources Khalid Al-Falih is optimistic that other large oil producers will join forces with Russia and Saudi Arabia to take appropriate steps to stabilize the markets.

"We are optimistic that Algiers meeting will provide a forum, and pre-Algiers that consultations which will take place bilaterally and in groups will bring us to Algiers with some sort of coordinated decisions. But the two countries agree that even if there is no consensus, we will be willing to take joint action when necessary," said Al-Falih.

Along with this, China and the U.S. announced their formal joining of the Paris agreement. China has to wean the economy away from the use of fossil fuels if it expects to achieve its target of carbon emissions by 2030. In order to realize this shift, China will have to make an initial investment of $5.2 trillion in lean energy technologies, which will lead to $8.3 trillion in savings by 2050, according to a study Reinventing fire: China.

Hence, as a major importer of oil, China will want the recently announced cooperation between Saudi Arabia and Russia to fail so prices will remain low. If that happens, China can postpone investments into fossil fuels and divert that money towards clean technology, which will help it to reduce its carbon footprint.

*  *  *

In addition to China's efforts, the rise in rig count and OPEC concerns over additional supply are weighing heavy on crude after its spike on "one-off" inventory draw data...

OPEC flipped its forecasts for rival supplies in 2017, predicting increase in output from outside group instead of decline.

 

“It’s just a continuation of what already started on Friday,” says Carsten Fritsch, commodity analyst at Commerzbank. “We ran at resistance at the top end of the trading range and now we are testing the lower end.”

 

Says rising rig counts added to downward momentum of prices, market remains oversupplied. Rigs targeting crude in U.S. rose for 2nd week to 414, highest since Feb., according to Baker Hughes data on Friday

 

Production from outside OPEC will grow by 200k b/d next year, according to the group, which mo. ago projected drop of 150k b/d.

And it appears traders are getting the message...

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
LawsofPhysics's picture

Interesting.  How much oil is in China again and how easy is it to extract?  Seems like they might want to be nicer to their neighbors...

Sorry, this piece is bullshit.

BorisTheBlade's picture

Who knows, China is quite influential these days and has the ability to affect oil market by throwing its weight around. Second, they have numerous 'resources-for-infrastructure' loans where resource prices affect the amount of underlying commodity to be shipped to China, hence when commodity prices decrease, more commodities to be delievered: i.e. comething like that http://www.argusmedia.com/news/article/?id=938771 happens. There was a story on ZH as well.

Having said all that, China seems to have reached the limits to receive and store oil, so by that time they would have extracted most of the benefit from low oil prices. It's either they aren't done yet or it's someone else pointing fingers, in that sense, I haven't seen a proper analysis on energy derivatives which might be used to supress the oil market. To whose benefit is another matter, fog of oil wars.

post turtle saver's picture

meanwhile, back at the ranch, the US is a) no longer the world's largest consumer and b) is also the world's largest _producer_ of oil (and natural gas as well)

have fun fighting in the corner, boys

The central planners's picture

Its also the #1 in non-profit oil extraction thanks to the junk bond ponzi market.

GoinFawr's picture

Quid, semper, totus.

 

o Fortuna,

Velut luna,

Statu variabilis...

small towel's picture

measuring oil in tons is as off-putting as measuring money in centimeters

GoinFawr's picture

"measuring oil in tons is as off-putting as measuring..."

-sugar in calories

-hot dogs in animal lips

 

 

 

Turin Turambar's picture

The fear didn't last long.  :-O

Privyet_Jet's picture

Russia to China: Nyet Privyet

SmittyinLA's picture

No actually fits their plan, China has a far higher oil entry costs, they need OLPEC to justify their massive publicly supported oil plan, without high prices they go bust.

You can't buy oil at 80-100 + barrel and sell for 60, can't "make it up on volume"

Or did ZH miss the China oil buying frenzy at way higher prices than now?

photonsoflight's picture

As long as they (gov,fed, etc)are creating money from thin air then drill, baby, drill. Drop the price to 10$ a barrel. All the middle east will be impoverished as well as Russia. Build the wall and deport all illegals,esp. muslims. Problem solved.

GoinFawr's picture

"ah, a man who wears his soul on his face"-Jim Fuckin Morrison that's who

+/-1