Oil prices have been struggling to rise beyond the low $50s per barrel. Not helped by news this week that Libya’s production has hit a 3-year high at 715,000 barrels per day — and is expected to rise to 1.25 million b/d by end-2017.
And the crude market may have an even bigger problem looming.
Russia.
New data Monday showed that Russian oil producers achieved a major milestone in 2016. Becoming the largest supplier of crude to energy-hungry China.
That came as Russian oil shipments to China rose 24% as compared to 2015 levels — to an average 1.05 million barrels per day for the year. Inching Russia ahead of go-to supplier Saudi Arabia, which saw its exports to China average 1.02 million b/d in 2016.
That shift is happening as Saudi producers reportedly reigned in output under the OPEC production cuts agreed in late 2016. A move that likely played a big role in Saudi Arabia’s China exports staying flat in 2016 — despite overall Chinese demand for foreign oil hitting its highest level since 2010 during the year.
The chart below shows the story well.
(Click to enlarge)
China’s crude imports from Russia (white line) saw another big jump in 2016, while Saudi exports (blue) were flat
All of which suggests that Russia is shaping up as major challenge to OPEC dominance in the global oil market. With this world-leading producer being free from production quotas — allowing it to grab market share while big OPEC producers like Saudi Arabia cut back output.
That’s going to put pressure on OPEC to get back to business in pumping more oil. Which would in turn weigh on the oil price — especially as former big producing nations like Libya make a return to the market.
Watch for more import stats from China to see if Russia can hold its spot as top supplier. And for signs of dissent amongst OPEC members — who may be realizing the U.S. shale oil isn’t their only competitor globally.
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Here’s to being on top.
By Dave Forest
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