Russia has replaced Saudi Arabia as China's main oil supplier

Russia became the leader in crude oil supplies to China in May with 8.42 million tons, displacing Saudi Arabia, which had held the position for the previous 18 months.

The main reason is the huge discounts offered by Moscow to Chinese buyers, Reuters sources claim. In May, China increased imports of Russian crude oil by a record 55% on an annual basis, according to data from the General Customs Administration of China, quoted by the agency. Last month, almost 2 million barrels a day were imported every day, or a quarter more than in April. Imports are also made by tankers via the Eastern Siberia-Pacific Ocean pipeline.

Due to the sanctions, Russia started offering buyers in March an average discount of about 20% on the price of the Urals variety, in April it reached 33%, followed by a correction in the opposite direction by almost 20%.

In early April, Reuters reported, citing its sources, that Chinese state-owned oil companies (PetroChina, Sinopec, Sinochem, and CNOOC) were refraining from concluding new contracts to supply Russian oil. Beijing is wary of a situation in which buying extra fuel begins to look like support for Moscow in its attack on Ukraine.

“The message and tone are clear – risk control and compliance with [Western sanctions] are more important than profit,” a source familiar with what they are discussing at Unipec (a division of Sinopec) told the agency. He also noted that there are many difficulties with payments and logistics, despite the existence of “huge discounts”. According to the Financial Times at the time, private oil refineries had increased the amount of oil purchased from Russia by early May.

Sinopec and state-owned Zhenhua Oil bought at a discount in May as Saudi oil supplies rose 8.7 percent year on year. This equates to 7.82 million tonnes for the whole month or 1.84 million barrels per day. In April, the daily norm was 2.17 million barrels.

During the same period, supplies from Brazil decreased by 19% on an annual basis to 2.2 million tons and the explanation is Russian dumping. China has not bought Venezuelan oil since 2019 for fear of falling under US secondary sanctions, according to Reuters.

In early June, European countries approved a package of sanctions banning the purchase of oil from Russia, as well as banning “insurance and reinsurance of maritime transport of such goods [oil and petroleum products] to third countries.”

This creates severe restrictions on shipping, the capacity of oil pipelines from Russia to Asia cannot cover all the volumes that Europe, the United States, and Canada are giving up, and the construction of new pipelines takes years. At least initially, because of rising prices from the war and other factors, Moscow will continue to profit – and probably even more so now – from real exports of smaller volumes of Russian oil.

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