How China is quietly buying up Russian oil

Until the European Union agrees on an embargo against Russian oil, China has been quietly increasing the volume of its purchases for the second month in a row.

What's happened

This week alone, there have been several signs that China is gradually increasing its purchases of Russian oil.

• Reuters wrote about "quiet" but record growth in purchases of Russian oil by Chinese companies. In May, China will receive an average of 1.1 million barrels per day by sea (against 750,000 b/d in April and 800,000 b/d on average in 2021). Is it a lot or a little? 1.1 million barrels is about 10% of the average daily oil production in Russia last year.

• The leaders in purchases are not small oil refineries, but large Chinese state-owned companies - Unipec, a Sinopec trader, and Zhenhua Oil, a division of the defense holding Norinco. Tanker transportation is provided by Hong Kong Livna Shipping.

• The increase in imports by China began in April, Bloomberg clarifies conducted transactions (in March, on the contrary, small companies , and cash rubles and yuan began to be used in transactions). And China is buying up more than just oil.

• Judging by Chinese customs statistics, in April, purchases of Russian oil, LNG and coal increased by 75% in monetary terms to $6.4 billion. Oil imports grew even in physical terms by 4% yoy to 6.55 million tons Russia is second only to Saudi Arabia in this indicator. LNG deliveries from Russia to China jumped by 80% to 463,000 tons, with an overall decrease in imports of liquefied fuel by a third. Thermal coal imports fell 14% to 3.8 million tons, but coking coal more than doubled to 1.7 million tons.

• And that's not all: China is now thinking of buying cheap Russian oil for strategic reserves, learned Bloomberg . Negotiations about this are being conducted at the state level with little direct involvement of the oil companies. China does not disclose the size of these reserves, but including commercial storage, it is closer to 1 billion barrels. According to the estimate given by the agency, about 6% of this volume is free.

• An official representative of the People's Republic of China on Friday neither confirmed nor denied plans to buy Russian oil also for strategic reserves, noting that "unilateral sanctions contradict the objective laws of the economy."

What do I get from this?

The "oil turn to the East" for Russia is the only chance to save foreign exchange earnings in the event of a Western embargo. The pragmatic Chinese understand that Russia has no choice - and this allows them to dictate their terms. According to Reuters, the discount on Russian oil in China is now about $29 per barrel compared to spot prices that were before the start of the “special operation”. In the struggle for geopolitical independence from the West, economic independence from the East will have to be sacrificed.