Russia again dominates China's crude oil supply ranking for another month

Russia has been the main oil supplier to China for the second consecutive month, once again surpassing Saudi Arabia. The Kremlin, through heavy discounts, continues to diversify its shipments to the Asian giant, mitigating the consequences of Western sanctions on its crude and allowing it to continue financing the invasion of Ukraine.

According to the Chinese General Administration of Customs, total Chinese imports of Russian oil reached 7.29 million tonnes in June, some 1.77 million barrels per day, 10% more than this time last year. Russian crude has arrived both through the pipeline that connects the two countries, known as the Eastern Siberia Pacific Ocean, and by shipments from European and Far Eastern ports in the Eurasian country.

Saudi Arabia, China's historically largest supplier, fell to 5.06 million tonnes, or 1.23 million barrels per day, and was hurt by low Russian crude prices.

Moscow also dominated the ranking in May, achieving record shipments of 2 million barrels per day. While these quantities fell by as much as 30% in June, so did Chinese crude imports, which fell to their lowest in four years, pushed down by the containments in the face of the spread of the coronavirus in the Asian giant.

China's appetite for Russian crude has been accompanied by significant discounts, with which Russia is seeking to reposition itself in new markets in order to mitigate Western sanctions. Thus, since the beginning of the invasion, Russian indices have traded around $30 less than Western and Middle Eastern indices, but still fetching high prices, with ESPO at around $80 a barrel in June and Urals Crude at around $90.

In response to the invasion of Ukraine, the US and UK announced an embargo on Russian crude, and the EU has agreed to reduce its imports from this source by about two-thirds by 2023, blocking seaborne purchases. Crude oil exports are Russia's main economic activity, accounting for as much as 22.4% of its total exports in 2021 and, along with natural gas, 45% of its federal budget, so securing alternative buyers is vital for Moscow, and, thanks to low oil prices, it is finding strong demand outside the West.

For years, Beijing has been one of the main buyers of Russian crude oil, but since the beginning of the invasion of Ukraine, it has increased its purchases to unprecedented levels, taking advantage of the Eurasian power's discounts in an international context of soaring prices. Moscow is also increasing its shipments to other non-Western countries, such as India, which between April and June imported a record 682,200 barrels a day, compared to 22,500 in the same period last year. Thus, despite the discounts and the increasing loss of its traditional markets, Moscow has not only not seen its oil revenues fall, but they have actually increased in the wake of the invasion. 

Beijing is also fast becoming a major buyer of Russian natural gas, both through the Power of Siberia pipeline linking the two countries, which by 2025 will be able to transport up to 38 million cubic metres (bcm) annually, and from the liquefied natural gas sector, with purchases from the latter increasing by up to 30% in the first half of 2022 compared to the previous year's data. In addition, in February, Rosneft and CNPC reached an agreement to build a pipeline from Sakhalin Island capable of transporting 10 bcm, and Beijing and Moscow are negotiating the construction of a new pipeline through Mongolia with a capacity of 48 bcm.

According to a research study by the think tank Centre for Research on Energy and Clean Air, Moscow earned around $100 billion from fossil fuel exports in the first 100 days of the invasion, filling the Kremlin's 'war coffers', which can make all the difference in a conflict of attrition.