One of the most important bull thesis for crude in 2023 is that China, having permanently shelved its zero Covid policies, will unleash a global buying spree as the Chinese economy sharply roars back to life.
On Tuesday, we got another indication of precisely that: Unipec, the largest oil trader in China and the trading unit of state-held refiner Sinopec, and PetroChina, the largest oil and gas producer and distributor in China, have both hired ten supertankers in March to haul US crude back to Asia, according to Bloomberg, citing people with direct knowledge of the matter.
Each vessel can transport a whopping 2 million barrels of crude. The people said that the loading of the tankers is expected to occur across US Gulf Coast terminals.
"Chinese buying activity of US barrels seems to be the hottest activity right now," Viktor Katona, a lead crude analyst at Kpler, told Bloomberg. He said Chinese firms are taking advantage of a "remarkable, profitable arbitrage" for US crude that has been suppressed because of President Biden's massive releases from the Strategic Petroleum Reserve (remember when China was buying SPR releases last year?).
The first indication of China embarking on a global buying spree of crude was last month. We pointed out Unipec was set to purchase at least 18 cargoes of Upper Zakum crude from Abu Dhabi in March.
Chinese oil demand is rebounding after the reopening of its economy. Traders are closely monitoring Chinese oil demand for hints at what's the next direction for benchmark Brent futures.
Data and analytics firm Kpler pointed out as many as 14 Very Large Crude Carriers are preparing to load from the US Gulf Coast to China in March. Katona noted this doubled the volume shipped over the last several years.
Saudi oil giant Aramco expects the Chinese reopening and a pick-up in jet fuel demand to lead to a rebound in global oil demand this year, Amin Nasser, the CEO of the world's biggest oil firm, told Bloomberg in an interview last month.
And the Chinese buying isn't limited to the US and Abu Dhabi. OilPrice said PetroChina and Sinopec are back on the market for Russian Urals and taking advantage of the deep discounts.
Here's something for oil bulls:
"China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain," International Energy Agency said last month.
Remember, we told readers this would happen as early as November in a note titled "China Quietly Boost Oil Imports In Preparation For Reopening."
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It is on a global crude oil buying spree buying increasing volumes from Russia, the United States, Saudi Arabia, UAE and Iraq.
In the case of the United States, China is simply taking advantage of a “remarkable and profitable arbitrage” for US crude that has been suppressed because of President’s Biden’s massive releases from the Strategic Petroleum Reserve (SPR) according to Victor Katona, a lead crude analyst at Kpler.
The irony is that whilst the SPR releases have hardly managed to depress oil prices while reducing the SPR level to its lowest since 1983 at a time of escalating tension with both China and Russia, the wily Chinese are benefiting from the debacle of the SPR.
China’s oil demand is projected to hit 17.0 million barrels a day (mbd) in 2023 necessitating the import of 12.0-13.0 mbd of crude oil. Moreover, China will account for 1.15 mbd or 50% of projected global demand growth in 2023.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert