Rising demand for oil in China raises panic in crisis-hit Europe

China has tended to increase demand for crude oil from global markets over the past months, sparking panic among European traders eager for alternatives to Russian oil and gas.

China is competing for crude shipments destined for Europe, which may push prices to flare up again during the second year of the Russian-Ukrainian war, which is not expected to end soon, according to Bloomberg.

In May 2022, EU leaders reached a mandatory agreement to immediately ban the purchase of Russian seaborne oil by 75%.

This percentage has risen to 90% since December 5, 2022, with limited exceptions, prompting European traders to compete with giant Asian markets to acquire the most enormous possible amount of global oil shipments, according to AFP.

Beijing eases Corona's measures

China, the world's largest oil importer, has been preoccupied during the past two years with the corona pandemic, which led to a decrease in the global demand for oil, and this contributed to reducing the incentives for its ignition from the record levels recorded during 2022.

In addition, China stopped procedures for requiring incoming travelers to quarantine, starting from January 8, 2023, in a major step towards easing the strict precautionary measures taken since the beginning of the corona pandemic.

Observers expect the return of industrial activity in China to recover, which may lead to a rise in domestic demand for energy in the largest oil importer in the world, according to Bloomberg.

5 million Kazakh barrels

China bought 5 million barrels of Kazakh crude oil circulating in the Black Sea during December 2022, the highest level since 2021, according to Radio Free Europe and Bloomberg.

The data on Chinese demand for oil during December 2022 represents an extension of the data for October 2022, which witnessed a significant increase in China's purchases from international markets and pushed the global demand for oil to rise, according to the IEA Oil Market Report (OMR).

According to data from the International Energy Forum, the global demand for oil increased during October 2022 at a rate of 1.7 million barrels per day compared to the same month in 2021.

In China, the demand for oil rose to 518,000 barrels per day during October 2022 to record the highest level in five months.

China is not only competing to buy oil shipments destined for Europe from the Middle East and elsewhere but has also become a back market for Russian oil, which has been banned from entering Europe entirely since December 5, 2022. This means that the competition field is widening for China and narrowing for European merchants, according to Bloomberg.

Aramco cuts the price going to Asia

On January 5, 2023, Saudi Aramco announced a record reduction in oil sales prices to Asia to lure Asian markets that expect Russian barrels of oil to flow to them in the coming months.

Aramco decided to reduce the official selling prices for Arab light crude to Asia to the lowest level in 15 months at $1.8 a barrel.

Aramco also set the official selling price for shipments of Arab light crude, for delivery in February 2023, to Northern Europe and the Mediterranean countries at $1.5 a barrel, less than Brent crude, a decline of $1.4 compared to January delivery prices.

Aramco's decision to cut prices in February comes in light of the domination of a state of uncertainty over the expectations of oil demand and fears of a decline in conjunction with the flow of Russian oil to Asia through back gates, according to Reuters.

Russian oil discounted for China and India

Russia has diverted most of Europe's oil exports to major powers in Asia after Europe officially closed its doors to Russian seaborne shipments starting December 5, 2022.

Russia offers massive 40% discounts to China and India, the two largest countries in the world in terms of population and energy consumption, to motivate them to buy its oil besieged by Europe and the United States, which prompted the two countries to enhance purchases in November 2022, according to Bloomberg and Oil Price.