Stay informed with free updates
Simply sign up to the Oil & Gas industry myFT Digest — delivered directly to your inbox.
China has stepped up its purchases of oil from producers in the Middle East in recent days, with deep discounts offered by its main supplier Saudi Arabia on Monday seen as likely to boost its buying.
China bought at least 26mn barrels for delivery in July or August through tenders and one-off purchases from trading firms, in cargoes from Qatar, Saudi Arabia, the United Arab Emirates and Iraq, according to price-reporting agency Argus.
This is much more than normal through these types of purchases. Before the war, China typically bought about 5.5mn barrels a day from the Middle East, mostly through formal processes run by Gulf producers such as Saudi Aramco.
China’s return to crude markets is being closely watched by oil traders as its decision to scale back purchases from the region after the outbreak of the Iran war helped cool global markets.
Saudi Aramco on Monday offered deep discounts on all its grades in response to the partial opening of the Strait of Hormuz to merchant shipping.
The discount on its flagship crude, Arab Light, to Asian buyers is now at its deepest since June 2020, when the kingdom was locked in a price war with Russia, according to a notice sent to its buyers. It previously raised premiums at the outbreak of the war to record highs.
Analysts view the move as likely to boost Chinese purchases from the Middle East, after the country’s buyers stepped up their purchases of ad hoc cargoes over the past two weeks.
However, they said Beijing would seek to avoid sending strong signals about a return to Middle Eastern markets for fear of reversing recent price falls.
China “knows visible restocking could trigger a rebound”, said S&P director of oil trading research Zhuwei Wang. Already, the return of Chinese buyers to the Middle Eastern crude market was a bullish signal, he said.
Some content could not load. Check your internet connection or browser settings.
China has increased its purchases of Gulf crude in an effort to replenish its domestic stocks. These were eroded as it drew on them during the war, curtailing imports as it sought to keep global prices from spiralling following the near closure of the Strait of Hormuz, the vital waterway through which about a fifth of global oil shipments passed before the war.
Commercial stocks in China are likely to have been depleted by nearly 1mn b/d in May and June, said Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies. Those stockpiles needed to be rebuilt, she said.
The Middle East ordinarily supplies about half of China’s crude imports but flows slowed in April to their lowest level in nearly 10 years, according to data compiled by Kpler.
China held off buying crude from other suppliers during the war to offset the amounts it would ordinarily get from the Gulf, helping to calm fears of surging global prices.
Some content could not load. Check your internet connection or browser settings.
The reopening of the Strait of Hormuz following the extension of a ceasefire between the US and Iran has increased the availability of oil from the Gulf.
Beijing imposed informal restrictions on the export of oil products such as gasoline and jet fuel following the outbreak of the Iran war, and these are largely still in place, capping the amount of crude feedstock it can import.
“Any real revival in Chinese crude buying will be contingent on China lifting export controls on oil products,” said Fabian Ng, head of Asia crude pricing at Argus.
Authorities in Beijing were likely to face intense lobbying to lift export controls from Chinese oil majors, as they rely on selling refined oil products abroad at higher prices than what they can charge domestically, said Meidan.
But China was likely to take a cautious approach, she said, in case flows from the Middle East are disrupted again, leaving countries racing to secure supplies.
Beijing would have “one eye on the domestic market and margins there and another on the international market, because they don’t want to start a crude buying frenzy”, she said.
