Eastern discount

Oil exporters are ready to provide China with a discount on raw materials

China continues to set records for hydrocarbon consumption. In January, another monthly maximum for oil imports was reached. China, according to the national customs administration, imported 17.1 million tons (4 million barrels per day), which is a third higher than last year. This is far from the limit, and in order to retain a significant share of the growing market, Saudi Arabia, in particular, intends to provide Chinese consumers with a discount starting next month. It will be extremely difficult for Russian suppliers to interest buyers from the Middle Kingdom.

Against the background of the rapid growth of China's GDP (according to forecasts, this year the growth rate may be four times higher than in the United States), experts expect an equally intensive increase in the consumption of “black gold”. Already today, with a fairly high level of its own production, China imports more than half of all consumed hydrocarbons. Suppliers of raw materials to the Middle Kingdom are many countries, including Sudan, Oman, Russia, Iran, Angola and Saudi Arabia. The last three currently account for about 47% of the total volume of imported oil. Considering the practically inexhaustible possibilities of Chinese demand, all of the above powers will try not only to maintain their share in the Chinese market, but also to increase their presence in it. “All exporters perceive the Chinese market as extremely important and are trying to strengthen their ties with it. This became especially true after imports to the United States fell by about 10%. Previously, oil imports in America reached 9 or even 10 million barrels per day. Now it has dropped to 8 million,” noted Andrey Gangan, chief analyst at Kalita Finance Investment Company. -- China is a completely different matter with its rapidly growing automobile market. We can count on a 10-15 percent increase in oil imports.”

Some suppliers are already seriously concerned about this issue. For example, Oman announced its intention to significantly increase oil production, for which, according to the Minister of Oil and Gas of the Sultanate, Mohammed al-Rumhi, about $10 billion will be invested in the raw materials sector of the country's economy. The largest supplier of raw materials to China is Saudi Arabia (from 204 million tons imported into China last year, more than 41 million were imports from this country) decided to take a different route. To increase the competitiveness of its supplies in the Chinese market, it used a proven marketing ploy - offering a discount. And although the discount turned out to be not very large - only $0.5 per barrel of Super Light oil, the state-owned company Saudi Aramco will certainly be able to squeeze out competitors from Oman and Dubai. Despite the fact that Saudi Arabia’s “black gold” continues to be more expensive, the price difference has decreased to $0.9. Let us make a reservation that the cost of oil supplied to the countries of northwestern Europe, on the contrary, has increased. Under such conditions, Saudi Arabia can well expect, if not a 15 percent increase in supplies to China, as last year, then at least stable interest in the oil it offers.

According to the general opinion of experts interviewed by Vremya Novostei, Russia should hardly count on such results. And although, according to our country’s trade representative in China Sergei Tsyplakov, last year the supply of domestic oil to the Celestial Empire increased by 31%, the volume of Russian exports lags far behind (15 million tons versus 41 million). “We have nothing to offer. We have already made a discount - under a long-term contract they already have a price below the market price, and this suits them quite well. We are unlikely to be able to increase supply volumes - the increase in our production does not keep pace with the increase in their demand,” Mr. Gangan complained. The head of the Center for Economic and Social Research of China, Deputy Director of the Institute of Far Eastern Studies of the Russian Academy of Sciences, Andrei Ostrovsky, shares the same opinion, according to whom, an attempt to change a previously concluded agreement taking into account current energy prices could negatively affect the image of Russia as a business partner.

The average price of oil purchased by China in 2009 was $59.75 per barrel. “The branch line from ESPO is not yet operational; the railway supply route is operating at maximum capacity. If we increase the volumes of oil supplied by rail, then we will no longer be able to export anything else. How will representatives of the timber industry look at oil workers in this case?” - noted the expert.

India, which imports 77% of its oil consumption, will complete construction of its first strategic oil storage facility by the middle of next year. Reservoirs with a total capacity of 1.33 million tons will be constructed on the east coast of the country in Visakhapatnam, and by 2012 two more oil storage facilities will appear on the west coast in Mangalore. As a result, according to the Indian Minister of Petroleum Industry, Mr. Sundareshan, the country's total strategic oil reserves will be increased to 5 million tons, which is equivalent to two weeks of imports. However, Delhi’s decision to create a reserve is by no means original. The United States, China and Japan are already forming a strategic reserve in case of supply disruptions or excessive increases in hydrocarbon prices.

Petr GELTISHCHEV