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China’s Worrying Oil Vulnerability

Friday October 11, 2019

1. China’s Middle East vulnerability

- China is the largest oil importer in the world and its vulnerability lies in its dependence on oil flows from the Middle East. China’s oil imports from the region have surged from 0.33 mb/d in 1998 to 4 mb/d in 2018.

- The Abqaiq attack highlighted the stakes. “With over 1 mb/d of Chinese refining capacity designed with Saudi crude as baseload, and imports from Saudi at 1.6 mb/d between January and July 2019, Chinese buyers had reason to panic,” the Oxford Institute for Energy Studies wrote in a report. And “yet on the whole, they remained relatively sanguine.”

- Aramco went to lengths to restore capacity and ensure that shipments were not interrupted. “Perhaps counter-intuitively then, the attacks also highlighted the importance of demand security as large oil producers are opting to supply their biggest client,” OIES said.

- If Saudi shipments were interrupted, China has a strategic petroleum reserve that it could draw upon, as well as commercial stocks. While precise figures are not disclosed by Beijing, OIES estimates that China has 800 million barrels in combined SPR and commercial stocks.

2. Gas glut hits gas stocks hard

- Energy stocks have performed extremely poorly this year, but natural gas-focused drillers are in particular danger.

- Natural gas futures have suffered their longest losing streak…



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