Days ahead of the key…
The real driver behind the…
China’s dependence on crude oil imports has been growing in recent years as its domestic production has faltered, and the world’s top oil importer covered 73.4 percent of its oil demand with imported oil in the first half of 2020.
According to Chinese data, analyzed by Radio Free Asia’s Michael Lelyveld, China has been buying record volumes of crude oil over the past months in order to bolster its energy security, especially at a time when its relations with the United States are deteriorating.
Over the past decade, China’s oil production has been falling while its oil demand has been soaring, increasing Beijing’s dependence on sourcing oil from abroad.
The Chinese authorities have recently launched a plan to boost energy security by ordering state oil giants to increase domestic oil production.
In the first half of 2020, China’s crude oil production did increase, by 1.7 percent year on year, according to data from the National Bureau of Statistics of China. The growth in production between January and June, however, was 0.7 of a percentage point slower than that of the first quarter, the bureau said.
At the same time, in the first half of the year, China’s imports of crude oil jumped by 9.9 percent compared to the first half of 2019, despite the devastating coronavirus pandemic that locked down China for weeks. The growth in imports between January and June was 4.9 percentage points faster than between January and March.
Related: Is Turkey Drilling For Oil & Gas In The Wrong Sea?
Record Chinese crude oil imports over the past few months have supported still weak global oil demand and instilled confidence in the market that the demand recovery will continue.
In June, China smashed its record from a month earlier and imported an all-time high of 12.9 million bpd of crude, more than 1.5 million bpd higher than the imports in May and a 34-percent jump compared to June last year, according to Reuters calculations of data from China’s General Administration of Customs.
But the Chinese buying spree may be coming to an end, as oil is not as dirt cheap as it was in April when most cargoes that arrived in China in recent weeks were contracted, and as China is estimated to have amassed large crude inventories in commercial and strategic storage.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
Three major objectives occupy China’s strategic thinking. The first is securing its oil and energy needs peacefully. The second is ensuring its energy security and the third objective is increasing its domestic oil production.
The growing dependence on oil imports has created an increasing sense of ‘energy insecurity’ among Chinese leaders. The Chinese government views the country’s dependence on imported oil as a chink in its armour that must be defended by all means.
China has sought to do so through three initiatives. One is its ‘Strings of Pearls’ (SOP) policy which aims to defend the shipping lanes that are vital to its oil lifeline, namely the Straits of Hormuz and Malacca.
The second initiative is to reduce its oil import dependence on the Middle East and secure most of its oil and gas needs overland by pipeline primarily from Russia. Russia owns and runs oil and gas pipelines to China providing vast quantities of crude oil, natural gas as well as LNG. This helps China overcome issues of energy security related to crude oil shipments from the Gulf having to pass through the very critical chokepoints of the Straits of Hormuz and Malacca.
The third initiative is to increase its domestic production. Despite great efforts, China’s domestic oil production has stubbornly remained stagnant.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London