For The First Time Ever Russia Beats Saudi Arabia As China's Top Oil Supplier

While OPEC members were infighting over crude production and export quotas, posturing with temporary production cuts (just so the Saudis could get a six month reprieve during which it clears out a massive internal crude glut), Russia was busy capturing market share, and according to overnight Chinese data, Russia overtook Saudi Arabia as China’s top oil supplier last year for the first time ever boosted by robust demand from independent Chinese "teapot" refineries.

Russia boosted oil exports to China by 24% from 2015 to 52.5 million metric tons, or 1.05 million barrels per day, according to data released Monday by the General Administration of Customs, cited by Bloomberg. In a blow to Ridyah's ambitions, the Middle Eastern kingdom slipped to second place, shipping 51 million tons, or 1.02 million barrels per day, little changed from a year earlier.

For December, Russia also held the top spot with supplies up 4.8 percent from the same month a year earlier at 1.19 million bpd. Meanwhile Saudi sales dropped nearly 20 percent from a year earlier to 841,820 bpd, data from the Chinese General Administration of Customs showed.

Total crude oil imports in December hit a record as refiners stepped up purchases ahead of a deal by oil-producing countries to reduce supply and bolster prices, Reuters reports. For the whole of 2016, imports gained nearly 910,000 bpd over 2015, the strongest annual growth on record and mostly driven by teapot buying. While Saudi Arabia counts China's state oil firms as backbone clients through long-term supply contracts, China's independent refineries, called "teapots" due to their smaller processing capacity, saw Russia as a more flexible, and perhaps cheaper, supplier.

Over the past year in which China's growing demand has proven to be the holy grail for oil exporters, "Russia has been tussling with Saudi Arabia for dominance in the Asian nation amid efforts by oil producers to defend market share during a worldwide glut."

Chinese demand, much of which has been to fill its strategic petroleum resreve, has been seen as a key to a sustainable recovery in prices, while benchmark rates are climbing from the worst crash in a generation amid output cuts by major producing nations. China last year bought the commodity at the fastest pace since 2010 amid growing appetite from private refiners, known as teapots, according to Bloomberg.

The proximity of Kozmino port, from where Russia ships Siberian crude, to Qingdao, where teapots typically receive their supplies, has helped boost cargoes after the processors were allowed to use overseas oil in 2015. “With teapots’ import growth set to continue in 2017 and the expected expansion of Sino-Russia pipeline by year-end, Russia is likely to aim for the top spot again this year,” said Sun.

“Saudis have always dominated the top supplier spot to China,” said Amy Sun, an analyst with Shanghai-based commodities researcher ICIS-China. “High imports from Russia mostly can be attributed to growing demand from teapots and strategic reserves purchase.” For the teapot plants, authorized to import crude oil for the first time in late 2015, shipments from Russia's eastern ports are easier to process, coming in smaller cargo sizes at a closer proximity.

Looking at 2017, Russia may be able to maintain the top spot as it expands exports of its East Siberian-Pacific Ocean (ESPO) pipeline blend crude. Saudi Arabia, meanwhile, is set to shoulder the lion's share of supply cuts agreed to last year by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers. Should the Saudis lose even more market share to Russia, it is virtually certain that the kingdom will promptly nullify the Vienna deal, as it scrambles to regain China's top supplier status in what will soon be a matter of national pride.

"OPEC cuts means Gulf producers take a hit in terms of market share, even though most of their cuts are to Europe and US ...Russia has an ESPO expansion coming up as well as supplies via Kazakhstan earmarked for China," said Michal Meidan of consultancy Energy Aspects.

Angola was the third-largest supplier in 2016, exporting 43.7 million tons, or about 875,000 barrels per day, 13 percent higher from last year, today’s customs data showed. China’s total crude imports climbed 13.6 percent last year to 381 million tons, according to customs data released on Jan. 13. China also boosted imports from South American producers last year, with growth of 37.6 percent from Brazil and 26 percent from Venezuela, the data showed.

Finally, imports from Iran expanded nearly 18 percent last year to a record 624,260 bpd, as Chinese state oil firms started to lift barrels from their investments in Iranian oilfields in addition to term supply agreements.