Precise take a look at the latest move from China as they become the world's largest importer of crude oil.
A surprising turn of events has occurred – China has become the largest global importer of crude oil. Just when we thought the country was putting the brakes on development and demands for oil were decreasing, it goes and imports 7.4m barrels in the last month. That’s 200,000 more than the US.
This is so significant because it is the first time China has imported more oil than the US –and it’s not likely to be a one off. Although it’s the highest growth rate since September 2014, the 13% rise in a month is possibly a signal that more is to come. Indeed it recently signed import deals with Myanmar and Russia.
One of the reasons behind this change of fortune is China’s continued cut in interest rates – down for the third time in six months. The measure, designed to stimulate growth, comes at an opportune moment when oil prices are still low, though they have begun to creep back up.
That theory is backed up by Platts, the global provider of energy information. “Apparent oil demand appears to be strengthening against a low base from a year ago, even though the economic outlook remains bleak,” said Song Yen Ling, Platts senior writer for China. “But there could be some support with continued loosening of credit controls by the government which could boost infrastructure investment.”
There is also the evidence that China is stockpiling oil. It is building new storage facilities which means it can buy as prices are still weak even if domestic demand isn’t as strong as it once was. According to Reuters, there is already a facility that can hold 132m barrels and SIA Energy anticipates two new facilities capable of holding around 50m barrels will be completed in Q4 this year. Added to that are commercial storage tanks able to store almost 40m barrels that will be available later this year as well.
Iran is the largest benefiter of the surge in oil purchasing and there could be bulk buy deals in place to encourage this relationship moving forward. Iran is keen to gain more Chinese investment and a two way friendship is a sound way of achieving that.
As this continues China’s role in the Middle East will grow. The head of energy security research at the National University of Singapore Philip Andrews-Speed has said that, “Being the world’s biggest crude importer should give China more buying power. China .. will no longer be the minority player. It becomes not only more important to Middle Eastern states, but the Middle East becomes progressively more important to China relative to other countries that are importing less oil.”
That was reflected in comments from the Saudi oil minister Ali al-Naimi during a high profile visit to China last month when he said he was “very positive” about continued strong demand from China.
The US has obviously slowed imports after a surge in domestic production thanks to the shale revolution, so naturally while it is anticipated that there will be some jockeying for the top spot in oil for a while, analysts are convinced the Asian giant is on track to take the lead on a permanent basis in the months ahead.