Dampened China demand driving up Middle East purchases of Russian oil
New data reveals that the amount of Russian fuel oil being brought into the Middle East has reached an all-time high of 280,000 barrels per day (bpd) in June. However, this increase in imports was not due to a genuine boost in demand from the region; it was simply an opportunistic move by sanctioned Moscow to find alternate buyers for its products, since their Chinese buyers were no longer available.
The desire for fuel oil among the Chinese population has been gradually increasing again following the COVID-19 outbreak, during which the country imposed some of the most stringent lockdown measures globally. The revival of the robust Asian economy has been sluggish, considering it was one of the final nations to ease social constraints to curb the virus. When it comes to supplying fuel oil to China, Saudi Arabia takes the lead.
Russia is a significant contributor to global oil and gas supplies, but the imposition of Western sanctions following their invasion of Ukraine has compelled the country to search for alternative buyers.
According to a report from Kpler, a company specializing in commodities analytics, fuel oil imports usually reach their highest point during this season as there is a high demand for power generation during the hottest months of the year. However, the rise in imports from Russia is mainly a result of the country aiming to fill the gap left by Chinese buyers, rather than due to a notable increase in demand from the Middle East.
India also contributed to balancing out the decreased demand for Russian fuel oil caused by the suppressed market in China.
Kpler stated that this was clearly noticeable as the exports of fuel oil from the Middle East increased to 1.4 million barrels per day in June, representing a rise of 340,000 barrels per day compared to the previous month and reaching an all-time high for the month of June.
According to the company, the recent reduction of 1 million barrels per day in Saudi Arabia's crude oil production has increased the need for summer fuel. Saudi Arabia has been one of the main purchasers of Russian fuel oil in recent times and bought a record amount in June. Kpler predicts that Riyadh is getting ready to purchase even larger quantities of Russian fuel oil.
According to Homayoun Falakshahi, an oil analyst at Kpler, the decision made by Saudi Arabia suggests that they will probably consume more fuel oil within the country to generate power. It is a logical move for them to import inexpensive fuel oil from Russia in this scenario.
"However, when Chinese refiners eagerly seek to acquire those products and power generation in the Middle East reaches its maximum level following the end of summer, it is possible that the volumes of flows from Russia may decline," Falakshahi commented. She further highlighted the significant increase in Russian refinery outputs, rising from 4.9 million barrels per day in May to 5.6 million barrels per day in August. This surge in production allows the country to expand its fuel oil exports.
In June, China imported a large amount of fuel oil, totaling 650,000 barrels per day (bpd), which was the highest it has been in a year. However, Kpler expects that in July, the imports of fuel oil will decrease to their usual levels as the imports of crude oil start to increase.
