In a noteworthy development reported on Jan 20, Russia surpassed Saudi Arabia to emerge as China’s top crude oil supplier in 2023, according to recent data.
Even with Russia experiencing sanctions from the West, China, the world’s leading crude oil importer, managed to acquire significant volumes of discounted oil for its refineries.
Chinese customs data revealed an impressive milestone for Russia, as the country delivered an unprecedented 107.02 million metric tons of crude oil to China in 2023.
This figure, equivalent to an impressive 2.14 million barrels per day (bpd), far exceeded supplies from other major oil exporters, including Saudi Arabia and Iraq.
The shift in supplier dominance was marked by a decline in imports from Saudi Arabia, China’s former top supplier, experiencing a 1.8% drop to 85.96 million tons. The Middle Eastern oil giant lost market share to Russia as the latter’s discounted crude proved more economically attractive to Chinese refiners.
The success of Russia’s crude oil exports to China was fueled by the aftermath of Western sanctions imposed in response to the Kremlin’s 2022 invasion of Ukraine.
Throughout 2023, Russian crude oil consistently traded at major discounts to international benchmarks, defying a price cap imposed by the Group of Seven in December 2022. This triggered an upswing in demand from Chinese and Indian refiners, ultimately driving up the price of Russian ESPO crude.
Meanwhile, in response to Russia’s ascendancy, Saudi Arabia raised prices for its signature Arab Light from July onwards, prompting some Chinese refiners to explore more cost-effective alternatives.
To stabilize prices, two of the world’s leading oil producers, Saudi Arabia and Russia, jointly announced output and export cuts in the previous year.
Saudi Arabia continued implementing output cuts of 1 million bpd in the current quarter, while Russia committed to reducing exports from 500,000 bpd to 300,000 bpd.
Despite geopolitical tensions between Beijing and Washington, crude oil shipments to China from the US witnessed a remarkable 81.1% surge in 2023.
The cumulative result of these dynamics was a record-breaking year for China’s overall crude imports in 2023, reaching an impressive 563.99 million metric tons, equivalent to 11.28 million bpd.
Russian Oil Transactions Despite Western Sanctions
While Moscow has reached the position of China’s primary crude oil supplier, it is grappling with a financial setback, as profits from oil and gas sales to Europe took a notable plunge, falling by approximately 24% to 8.822 trillion roubles ($99.4 billion) in the past year.
Finance ministry data released in January 2024 attributed this decline to weakened oil prices and reduced gas sales to Europe.
The impact of Western sanctions, including price caps and an embargo on seaborne oil exports, coupled with the closure of the Nord Stream gas pipelines to Europe, has substantially diminished Russia’s energy earnings.
The blow-up of the Nord Stream pipelines in September 2022 intensified the challenges faced by the Russian energy sector.
Despite these setbacks, Russian Deputy Prime Minister Alexander Novak expressed optimism in December, noting that Russia’s oil exports to Europe have dwindled to a mere 4-5%, down from 40-45%.
He emphasized that Russia has effectively rerouted oil shipments from Europe to emerging markets. Novak disclosed that almost all of Russia’s oil exports have been redirected to nations deemed “friendly,” with a significant focus on China and India.
In particular, New Delhi has also seized the opportunity to acquire discounted crude from Moscow, processing it before selling it to European customers. Although these transactions adhere to legal frameworks, skeptics argue that they serve as a covert channel for Russian oil, diminishing the effectiveness of imposed sanctions.
Responding to the decline in revenues, Novak emphasized that the government anticipates a recovery in 2024, with revenues expected to reach 11.5 trillion rubles.
Moscow appears to have navigated these challenges successfully, defying predictions of severe declines in oil supply. Russia, the world’s third-largest oil producer after the United States and Saudi Arabia, is expected to maintain or even increase its oil output this year.
This outlook is buoyed by the belief that Moscow has largely overcome Western sanctions. The government’s commitment to the OPEC+ agreement, which includes a 500,000 bpd cut in crude output until the end of 2024, reflects Russia’s concerted efforts to stabilize global oil markets.
Despite concerns about declining production, experts predict that Russia’s oil production may range between 515 million tons and 530-538 million tons this year, with exports remaining relatively stable at 250 million tons.
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