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day (bpd). Russia needs to maintain high levels of exports if it is going to recoup its lost revenue, but there are several factors that are preventing this, namely a discount on some of the crude that it has been offering. This has led to a surge in inventories in China, the world’s largest importer of oil.
The decline in exports could be attributed to the high levels of production cuts that have been implemented by Saudi Arabia and other OPEC+ countries. These production cuts have led to a decrease in available crude from countries like Saudi Arabia, Kuwait, and the United Arab Emirates. Meanwhile, Russia has maintained its production levels at near record highs, and as a result, has had to offer discounts in order to compete.
China has been the main beneficiary of these discounts. China’s imports of Russian crude have been at record highs, and the country’s crude inventories have surged to 200 million barrels, the highest level since 2018. This has also been a boon for the Chinese oil refineries, which have been able to take advantage of the discounts and increase their profits. The discount has also been beneficial for China’s energy security, as the country has been able to stockpile crude reserves in case of a supply disruption.
The surge in Chinese inventories is causing concern in the market, as it is uncertain how long the discount can be sustained. Russia is still producing near record levels, and has made a commitment to the OPEC+ agreement to reduce production. Eventually, Russia may have to start cutting its production in order to bring its inventories in line with demand, which could cause the discount to disappear.
The market will be watching China’s crude inventories closely in the coming weeks, as it could provide insight into what the future holds for crude prices and Russian production. If the inventories continue to rise, it could suggest that oil prices remain depressed in the near-term as Russian crude competes with more expensive oil from Saudi Arabia and other OPEC+ members.
For now, China’s oil inventories remain high, and Russian crude continues to offer a discount which is allowing Beijing to reap the benefits.