How does Saudi Arabia Maintain its Share in Chinese Oil Market?
There is no doubt that the Chinese oil market has become more competitive this year and based on the Chinese government’s statistics, Saudi Arabia holds the largest share in the Chinese market, however the amount of oil imports from Saudi Arabia decreased this year.
Chinese customs revealed that all Chinese revenues had increased during the first seven months of the year, while revenues from Saudi Arabia and South Sudan had decreased.
During the first seven months of this year, China imported about 30.5 million metric tons of Saudi oil, a 0.4% decrease than that of last year. Whereas, China imported about 29.5 million metric tons of Russian oil with 27% increase than last year.
Amid this fierce competition, it is important for Saudi Arabia to fortify its oil position in China with more political and strategic support. Granting discounts on oil prices won’t be helpful at this point, especially that Saudi Arabia sets its prices before all OPEC countries in the Gulf. So it has become crucial to create new methods to keep Saudi Arabia’s position in the Chinese market.
On Tuesday, Saudi Arabia and Chinese governments signed 15 memorandums of understanding (MoU) among which one in the energy sector and another in storing crude oil.
Oil storage MoU is the most prominent given that Saudi Arabia had never stored oil in China before.
Saudi Arabia currently owns three storage sites: Okinawa in Japan, Sidi Krir in Egypt, and Rotterdam in Holland. Saudi Arabia used to have another storage site in the Bahamas, but that was closed seven or eight years ago.
Saudi Aramco is suffering from some restraints on its ability to market oil in China since there are several small refineries which Aramco can’t go into long-term agreements with.
Earlier in May, Aramco sold instant shipment to the small refineries in China which caused Citigroup Bank to believe that Aramco is changing its strategies.
Analyst Mohammed al-Ramadi believes that because of oil storage in Japan, Saudi Arabia has been able to promote more in Asian markets. He added that such a thing is very important to supply the demand of quick and sudden shipments.
Analyst Anas al-Hajji believes that Saudi Arabia had invested a lot of time and effort to build its market share in China, but Russia has a higher competitive ability.
Saudi Aramco was able to build strong relations with China through a number of personnel who speak Chinese and had studied in China, like Mohammed al-Madi. Since his presidency of Aramco’s office in China in 2007, Aramco sales increased drastically and Chinese revenues of Saudi oil had been increasing gradually.
In 2004, China imported around 346,000 bpd from Saudi Arabia. This increased to 445,000 bpd in the following year. It kept increasing until it exceeded a million bpd in 2011 through 2013.
That is why the visit of the Deputy Crown Prince Mohammed bin Salman to China is very important. It shall enhance the position of Saudi oil in China especially that Saudi Aramco is still negotiating with the state-owned Petrochina Company to become its partner in the Greek refinery which is intended to begin operating soon.
Source: Asharq Al-Awsat