Based on Chinese government data, it was reported on Monday that Russia has overtaken Saudi Arabia as China’s top oil supplier in the first two months of 2023. The increase in Russian oil imports can be attributed to the fact that buyers are taking advantage of heavily discounted prices on sanctioned Russian oil. In the same period, Chinese imports of crude oil from Saudi Arabia fell from 1.81 million bpd to 1.72 million bpd, while imports from Russia rose by 23.8 percent from 1.57 million bpd to 1.94 million bpd.
In 2022, Saudi Arabia was China’s leading supplier, providing 87.49 million tonnes of crude oil, equivalent to 1.75 million bpd. However, due to Western sanctions and a price cap on seaborne Russian crude, Russian oil is being sold at steep discounts to international benchmarks. This has led to a limited buyer pool for Russian oil, with independent Chinese refiners, primarily based in Shandong province, being the main beneficiaries of the shift in pricing power.
Despite the pricing advantage of discounted Russian oil, Reuters reported that the entry of private Indian refiners into the ESPO market has eroded some of this advantage. Nonetheless, with domestic fuel demand rising after the lifting of COVID-19 restrictions, state-owned Sinopec and PetroChina have resumed purchases of Russian Urals grade cargoes in February 2023.
Chinese refiners typically use intermediary traders to manage shipping and insurance of Russian crude to avoid violating Western sanctions. Customs data also revealed that imports from Malaysia in the two-month period were 0.65 million bpd, a 144.2 percent increase from the same period in the previous year, and Malaysia is often used as an intermediary point for sanctioned cargoes from Iran and Venezuela.