Crude Economics
China Snubbing OPEC Oil

China has a healthy appetite for oil (to say the least), and over the past four years its reliance on OPEC suppliers for crude imports has ballooned from 34 to 43 percent. That’s starting to change, however, as Riyadh has begun a concerted effort to diversify away from the cartel’s suppliers. The Energy Information Agency (EIA) reports:

While OPEC countries still made up most (57%) of China’s 7.6 million barrels per day (b/d) of crude oil imports in 2016, crude oil from non-OPEC countries made up 65% of the growth in China’s imports between 2012 and 2016. Leading non-OPEC suppliers included Russia (14% of total imports), Oman (9%), and Brazil (5%).

On an average annual basis, China’s crude oil imports increased by 2.2 million b/d between 2012 and 2016, and the non-OPEC countries’ share increased from 34% to 43% over the period. Market shares for China’s top three non-OPEC suppliers (Russia, Oman, and Brazil), all increased over these years. While still comparatively small as a share of China’s crude oil imports, imports from Brazil reached a record high of 0.6 million b/d in December 2016, and imports from the United Kingdom reached a high of 0.2 million b/d in February 2017.

China’s oil demand has risen quite a bit over the past few years, and has recently been hastened as a result of crude price collapse. As the EIA explains, “[much] of Chinese production growth from 2012 through 2015 was driven by more expensive drilling and production techniques, such as enhanced oil recovery (EOR) in older fields.” Cheaper global prices made these projects unprofitable, which has forced Beijing to look elsewhere for its oil. As a result, China has become the world’s largest crude oil importer, and the International Energy Agency (IEA) expects the country will be the world’s largest oil refiner sometime in the next three to five years.

With petrostates cutting oil production to try and induce a price rebound, China has begun actively looking outside of the Middle East for more stable suppliers. In February, it surpassed Canada as the top buyer of American crude. On average, it purchased 1.48 million barrels per day from West Africa in April. In January, forty percent of North Sea crude was shipped to Asia. The pattern is clear: China’s reliance on oil imports is increasing, and as Middle East producers reduce their output, its confidence in OPEC suppliers is waning.

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