RUSSIAN, SAUDI'S OIL FOR CHINA

PLATTS - 21 Aug 2023 - China's crude oil imports from Saudi Arabia and Russia are showing signs of a rebound in August after declines in July, but those gains are not likely to last as refineries wait for the next announcement on import quotas.

Saudi Arabia's crude shipment to China are averaging 1.9 million b/d in August, up from 1.3 million b/d a month earlier, while Russia inflows are at 1.38 million b/d, up on month from 1.36 million b/d, according to Kpler shipping data. Imports from Saudi Arabia were at a 12-month low of 1.33 million b/d in July, while Russian shipments dropped to 1.91 million b/d in the month, the lowest since April, China General Administration of Customs data showed.

Although Saudi Arabia's official selling prices for August loading were high, Middle East crudes remained competitive with the addition of shipping freight, according to a source within Unipec.

Both state-run and private Chinese refineries are taking in more barrels, the source said.

Refinery maintenance

July customs data could have been understated by as much as 1 million b/d on paperwork and accounting delays, and could be corrected upward for August data, said Iman Nasseri, Middle East managing editor at Facts Global Energy in Dubai.

"Some Chinese refiners have been limited by refinery maintenance and quota constraints, and some of the capacities which were on maintenance are coming back this month, hence higher runs in August are expected," Nasseri said. "Still, refiners are waiting for the next announcement on quotas."

Some of China's small refineries have been buying fuel oil as an alternative to crude as China cracked down on imports of rebranded crude under the name of "diluted bitumen," but the trade has largely resumed since June, he said.

"After nominating less term volumes from Saudi Arabia due to higher OSPs in the past two months, Chinese refiners, including NOCs such as CNPC and Sinopec and mega independents such as Hengli and Rongsheng, have resumed their usual term volumes for September loading," he said. "But again, as the new quota announcement is delayed, we expect Chinese importers to be less active in the spot market yet."

OPEC+ cuts

Indications of higher Saudi Arabian volumes come amid a record cut in the country's crude production in line with the ongoing OPEC+ production controls.

In April, Saudi Arabia said it would slash 500,000 b/d of its crude production in concert with several OPEC+ allies, which are contributing an additional 1.2 million b/d of their own cuts, in a bid to tighten the market and reverse a slump in oil prices.

The kingdom then said it planned to make a unilateral 1 million b/d cut for July and August, bringing production down to a two-year low of 9 million b/d.

Saudi Arabia dropped its production to 9.05 million b/d in July, the lowest level since June 2021, according to the latest Platts survey from S&P Global Commodity Insights. The decline was not as steep as its pledged cut, with production falling 940,000 b/d on June volumes.

"Saudi energy diplomacy has always been versatile and adaptive during market shifts," said Abdulaziz al-Moqbel, an independent energy consultant based in Al-Khobar.

"One could easily notice that Chinese oil demand is still strong and increasing regardless of many macroeconomic indicators," he said. "The Saudi exports have relied on three foundations, commitment, priority and competitiveness. These three foundations had made the Saudi oil exports able to endure various scenarios of market conditions."

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