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China Turns To Gulf Producers For Fresh Oil Sources

China - Saudi Arabia

Riding a downward trend in upstream development within China, the Asian giant now turns to the Middle East for new sources of oil to fuel its growing energy demand.

Domestic oil production for mature Chinese fields has fallen eight percent year-over-year in 2016, but major oil companies, notably Sinopec and PetroChina, are seeing rising capital budgets for the purchase of stakes in international extraction projects. This facilitated China’s entrance into Abu Dhabi’s oil sector in February and the country’s potential involvement in Saudi Arabia’s historic Aramco IPO.

The Gulf Cooperation Council also wants to see this partnership grow because China is the largest importer of oil in the world, and national demand grows yearly. Recent political developments in the United States, another prolific energy consumer, has caused uncertainty regarding American buying patterns, though Aramco recently bought out Royal Dutch Shell’s 50 percent stake in the massive Port Arthur, Texas, refinery.

Beijing initially focused its Middle Eastern efforts on Iraq and Iran through the Chinese National Offshore Oil Company (CNOOC), which established China as a key player in Iraq’s southern oil fields as well as others in Kurdistan.

Six years of international sanctions hampered the energy trade between China and Iran, but restrictions have been lifted since January 2016, freeing Tehran to fight Saudi Arabia to regain lost market share.

Market tensions between Saudi and Iran have settled down in recent months due to the Organization of Petroleum Exporting Countries’ (OPEC) recent deal to lower bloc-wide output by 1.2 million barrels per day. The group has reached compliance levels of over 90 percent for the majority of time since the deal went into effect in January, with Saudi Arabia taking the lion’s share of cuts.

By Zainab Calcuttawala for Oilprice.com

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