China is the global oil market’s lifeline this year. The country has stepped up purchases from exporters including Russia, the United States, and Angola in recent weeks. Furthermore, buyers from other countries pared down orders as COVID-19 infections surge and new lockdowns are put in place.
As the pandemic hit consumption globally, China is the only major buyer expected to see increased oil demand this year. As a matter of fact, China has solidified itself as the world’s largest importer of crude.
Next year, China’s imports are expected to reach 12 million barrels per day. Sellers are lining up shipments to retain market share. Worldwide oil consumption is expected to fall by nearly 9% this year.
Shippers include Royal Dutch Shell Plc, Russian Lukoil’s trading arm Litasco, and Unipec, the trading arm of China’s state-owned Sinopec. They have provisionally booked, or are looking to book supertankers to ship U.S. crude. Shipments will be from the Gulf Coast to Asia in December.
COVID-19 infections are increasing globally, particularly in heavy fuel users such as the United States and Europe.
During the last few months, this pushed the prices of key crude grades lower. In turn, this allowed Chinese buyers to take advantage of the low prices.
China is also ramping up commercial oil stockpiling. It buys oil at low prices to increase its reserves.
International Energy Agency
The IEA said that China was headed to be the only major country to boost its demand for oil year-on-year. In fact, this year, it estimates global demand at 91.3 million bpd. That was down from 100.1 million bpd in 2019.
The premium for Russian January-loading ESPO Blend crude is at five-month highs. It is one of the most popular grades for Chinese independent oil refiners.
U.S. crude grades are rebounding. WTI in East Houston climbed to its highest in about two months this week.
U.S. grades have been pressured due to a 12% drop in domestic fuel demand. Moreover, as new COVID-19 infections hit daily records.
These come on the back of more stable Middle East crude prices. These prices make up the baseload of Asia’s demand. Qatar sold January-loading al-Shaheen crude this week, at the highest premiums in four months.
Premiums for ESPO Blend stabilized to $2.90 per barrel above Dubai quotes this week. This was their highest since June, as trading of January volumes began. Furthermore, Russia’s Sokol crude cargoes loading in January also recently strengthened to four-month highs.