- China imported 72 per cent of its oil in 2019, with Saudi Arabia and Russia, who are now locked in a price war, its largest suppliers
- Oil prices again fell on Wednesday, with Brent crude down to US$36 a barrel as Saudi Arabia moved to boost output capacity in an escalation of its price war with Russia
China’s coronavirus-hit industrial enterprises could receive a welcome boost from plunging oil prices, with the world’s largest importer and consumer set for significant cost savings, analysts said.
A total of 72 per cent of the oil consumed in China was imported in 2019, an average of 10 million barrels per day, meaning any sharp drop in costs as a result of the price war between Saudi Arabia and Russia will help firms reduce costs as they struggle to resume production.
“China benefits a lot from the price war as it is the world’s biggest crude importer,” said Bai Jun, an economic committee member at the China Petroleum Society, an association of Chinese energy researchers.
China imported 506 million tonnes (3.7 billion barrels) of oil in 2019, an increase of 9.5 per cent from 2018, marking the 17th consecutive year of increased imports.
Lower oil prices should raise output by 0.3 per cent above what it would have been with higher oil prices. This will provide some relief, but is a small offset to the many other drags facing the economy
Saudi Arabia and Russia topped a list, also including Angola, Iraq and Oman, that accounted for about 55 per cent of China’s total crude imports in 2018, according to China’s customs data.
“Lower oil prices should raise output by 0.3 per cent above what it would have been with higher oil prices. This will provide some relief, but is a small offset to the many other drags facing the economy, including the slump in global demand that has contributed to the fall in oil prices,” he said.
of at least three times that magnitude.”
On the other hand, a crash in international oil prices could potentially lead to an increasingly monopolised supply structure as small suppliers could be priced out in the market. This would fly in the face of Beijing’s long-term strategy of securing multiple sources of supply, Wang Yongzhong, who leads the global energy research at the Chinese Academy of Social Sciences, a government think tank, said.
Beijing “is concerned more about the energy security, or how to find multiple sources of stable supply [than a gain from lowers prices],” according to Wang.
The price of Brent crude, the international benchmark, fell back to US$36 a barrel on Wednesday, reversing gains made earlier in the day, after plunging more than 30 per cent on Friday after Saudi Arabia moved to boost output capacity in the opening of a price war with Russia. In 2019, according to customs data, China’s average import price per barrel was around US$65.
China is also a big oil producer with 190 million tonnes (1.4 billion barrels) of output last year and the average cost is higher than US$40 per barrel – a fall in oil prices can push them into losses
“China is also a big oil producer with 190 million tonnes (1.4 billion barrels) of output last year and the average cost is higher than US$40 per barrel – a fall in oil prices can push them into losses,” added Bai from the China Petroleum Society.
but that it would also create a “cold winter” for China’s oil producers, especially state-owned enterprises who still have to maintain production levels.
As oil prices are falling, these projects could translate into big burden for Chinese investors as there’s now a big question mark over whether these projects can make any money
Zhu Kunfeng, a Beijing-based expert with consultancy firm IHS Markit, said the plunge in international crude prices could dampen China’s domestic output and force it to rely more on overseas supplies.
The collapse in oil prices could also question the financial viability of many Chinese-invested oil projects overseas.
“Chinese companies had been aggressive in buying overseas oil assets in the early 2010s … in the name of improving China’s energy security”, Zhu said.
“As oil prices are falling, these projects could translate into big burden for Chinese investors as there’s now a big question mark over whether these projects can make any money.”
Source: SCMP
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