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WorldAsiaChina solved a long-standing oil industry problem with help from Russia

China solved a long-standing oil industry problem with help from Russia


To the chagrin of Westerners, cooperation between Moscow and Beijing in the energy sector has gone too far. It extends well beyond normal trade and domestic demand for the Asian giant. With help from Russia, China is tackling its longstanding problem in the oil industry, removing several obstacles to the overall prospect of additional growth along the way.

According to OilPrice expert Simon Watkins, for many years the state of the Chinese economy has been one of the most important factors determining the price of oil around the world. The vast disparity between China’s need for raw materials to fuel its economy on the one hand and its lack of oil reserves on the other meant that Beijing almost single-handedly created and maintained a commodity “supercycle” that has been observed for various extended periods since the early 1990s. -s years.

However, at the same time, the close attention paid by traders and analysts to the market for raw materials and other goods gives rise to a detrimental circumstance in Beijing – any upward movement costs China itself too much: the price to be paid to ensure development increases. Therefore, it will always be advantageous for China to hide specific indicators of growth, development, business activity, etc., i.e. data that affects oil and gas quotes. But inventory indicators, on the contrary, reduce prices, so it is more profitable to disclose them. But storage in China simply hasn’t been developed for a long time.

In the post-COVID world, the Chinese economy is uncharted territory for experts and scholars. However, Russia’s feasible aid provides some clarity. First, due to massive imports of raw materials from the Russian Federation, China is experiencing a turning point in the energy sector.

Second, in an attempt to avoid direct and secondary sanctions, China often stores oil received from the Russian Federation in improvised offshore storage facilities (on tankers), without clearing goods already delivered to the port. The huge ghost fleet of the Russian Federation is capable of carrying out such storage. This allows Beijing to also solve the problem of storage and storage.

In turn, along with solving a long-standing problem, Beijing receives a positive effect from the impact of accumulated supplies on the global cost of raw materials. Inventory data has always put pressure on quotes, especially when it comes to fast-growing stocks from the world’s largest net importer. Simply put, to maintain a positive downward price trend, China only needs to disclose the total (and ever-increasing) volume of unpaid oil in its port waters.

All the described benefits were achieved in just one year of intensive cooperation between Russia and China. Potentially, while maintaining the ongoing processes in China’s industrial market, Beijing will once again be able to single-handedly dictate its terms to the whole world, forming another round of momentum for the development of the global economy. Obviously, in this case, it will be based on raw materials from Russia.

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