Oil world tries to read Chinese post-pandemic demand

This photo taken on August 27, 2014 shows a petrol pump at a PetroChina petrol station in Shanghai. (File/AFP)
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Updated 25 October 2020

Oil world tries to read Chinese post-pandemic demand

  • The economic outlook for Asia will help decide some pretty pressing short-term policy issues
  • China’s refineries are getting back in top gear, and are looking to increase crude purchases in anticipation of economic recovery

DUBAI: While all eyes are on the US presidential election, the energy sector is keeping a watchful scrutiny on what is happening on the other side of the world, in China and the rest of Asia. Who the Americans choose will of course have enormous influence on energy policy for years to come, not least because Donald Trump versus Joe Biden is, in many ways, a runoff between the traditional oil and gas industry and the alternative renewable future.

But policymakers in the Middle East and in the broader OPEC+ alliance led by Saudi Arabia and Russia are looking eastward to determine more immediate priorities. The economic outlook for Asia, and of China in particular, will help decide some pretty pressing short-term policy issues.

At what official selling price should big producers such as Saudi Aramco and Adnoc mark their exports to China in the coming weeks? What stance should OPEC+ take toward compliance and compensation for the rest of this year? And, crucially, should it press ahead with plans to put an extra 2 million barrels per day (bpd) of oil on global markets in January, as the historic April cuts deal envisaged?

An added variable has been thrown into the works with higher-than-expected output from Libya, which has resumed production and exports from its war-torn facilities and could, according to some energy experts, be producing another 1 million barrels by the end of the year.

That is hardly a deluge of crude by global standards, in a world that consumes above 90 million bpd, though it is enough to complicate the already-delicate calculations of OPEC+ analysts.

But the big imponderable is China. The country blew hot and cold on oil imports since the April crisis, snapping up cheap oil one month and easing back on imports the next. It was hard to read the signals coming out of China.

Were the pauses in imports due to a slower rate of recovery from the pandemic economic lockdowns? Or was China simply chock-full of crude, to the extent that it had filled its strategic reserve and had nowhere else to store it?

Evidence of the latter came in the form of the flotilla of crude tankers waiting to unload off the coast of the Shandong oil terminal. At one stage, there were as many as 60 million barrels afloat awaiting discharge off China’s coast.

The people who make a living from tracking these things say that there has recently been evidence of a slow unloading from these ships, but that there is still an awful lot of crude afloat, waiting to come onshore.

There have also been signs that China’s refineries are getting back in top gear, and are looking to increase crude purchases in anticipation of economic recovery. One of the biggest, Rongsheng Petrochemical, recently snapped up 7 million barrels through Singapore, in a move taken by some to be the starting gun on an aggressive Chinese buying spree.

The economic logic suggests that if that is going to happen, it will take place pretty soon. According to the International Monetary Fund’s latest review, China — the only major economy forecast to grow in 2020, with 1.9 percent growth — will soar to 8.2 percent expansion next year. The country’s early and rigorous lockdown, and high levels of economic stimulus since then, are clearly paying off.

Whether the Chinese lift-off comes in time to affect OPEC+ calculations over the planned January increase remains to be seen. From where oil policymakers are looking at it at the moment, it looks like a good bet that China, at least, will need plenty of crude next year to fuel its post-pandemic recovery.


US sanctions Chinese and Russian firms over Iran trade

Updated 29 November 2020

US sanctions Chinese and Russian firms over Iran trade

  • Four companies accused of ‘transferring sensitive technology and items’ to missile program

LONDON: The US has slapped economic sanctions on four Chinese and Russian companies that Washington claims helped to support Iran’s missile program.

The four were accused of “transferring sensitive technology and items to Iran’s missile program” and will be subject to restrictions on US government aid and their exports for two years, Secretary of State Mike Pompeo said in a statement.

The sanctions, imposed on Wednesday, were against two Chinese-based companies, Chengdu Best New Materials and Zibo Elim Trade, as well as Russia’s Nilco Group and joint stock company Elecon.

“These measures are part of our response to Iran’s malign activities,” said Pompeo. “These determinations underscore the continuing need for all countries to remain vigilant to efforts by Iran to advance its missile program. We will continue to work to impede Iran’s missile development efforts and use our sanctions authorities to spotlight the foreign suppliers, such as these entities in the PRC and Russia, that provide missile-related materials and technology to Iran.”

The Trump administration has ramped up sanctions on Tehran after withdrawing from the Iran nuclear deal in 2018.

Earlier this week, Pompeo met Kuwaiti Foreign Minister Sheikh Ahmad Nasser Al-Mohammad Al-Sabah, when the campaign of pressure on the Iranian regime was also discussed.

“I want to thank Kuwait for its support of the maximum pressure campaign. Together, we are denying Tehran money, resources, wealth, weapons with which they would be able to commit terror acts all across the region,” he said.

It is not yet clear how the incoming administration of Joe Biden will deal with Tehran and whether it wants to revive the nuclear deal which would be key reviving the country’s battered economy. The Iranian rial has lost about half of its value this year against the dollar, fueling inflation and deepening the damage to the economy.

Iran’s economy would grow as much as 4.4 percent next year if sanctions were lifted, the Institute of International Finance (IIF) said last week. 

The economy is expected to contract by about 6.1 percent in 2020 according to IIF estimates.