Why Saudi Arabia is ramping up crude exports to China in May

Saudi Arabia’s crude oil exports to China are expected to see a significant increase in May compared to the previous month. 

This surge in supply is attributed to a substantial price cut implemented by the Kingdom, which has attracted Chinese buyers, according to a Reuters report. 

The price reduction has made Saudi crude oil more competitive in the Chinese market, leading to increased orders and a subsequent rise in exports. 

This development highlights the significant impact of price adjustments on the dynamics of the global oil market, as well as the ongoing relationship between Saudi Arabia and China in the energy sector.

Saudi Aramco, the state-owned oil company of Saudi Arabia, is substantially increasing its oil shipments to China in May. 

May shipments

The company will deliver approximately 48 million barrels of oil to Chinese refiners, marking a significant increase from the 35.5 million barrels shipped in April, according to the report. 

China is the world’s largest importer of crude oil, followed by the US and India. 

The recent data marks the first time Aramco has increased its allocation to China since the start of the year. 

This change in distribution strategy could signal a shift in Aramco’s priorities or a response to evolving market conditions in China. 

Several Chinese oil companies are planning to increase their imports of Saudi crude oil in May. 

These companies include the state-owned Sinopec, China National Offshore Oil Corp, and the private refiner Shenghong Petrochemical. 

Price cut

On Sunday, Saudi Aramco announced a sharp reduction in the May official selling price (OSP) for its flagship Arab Light crude oil. 

The new OSP is set at $1.20 per barrel above the average of Oman and Dubai crude prices, marking a substantial decrease of $2.30 from the April OSP. 

The premium for the Arab Light over the Oman and Dubai prices has reached a four-month low. 

This current premium is also nearing the lowest point it has been at in the past four years, indicating a significant decrease in the additional value associated compared to its price in Oman and Dubai.

Output increase

Aramco’s move coincides with the Organization of the Petroleum Exporting Countries and allies’ decision to significantly raise production of crude oil in May.

In a surprising move last week, the eight members of OPEC+, including Saudi Arabia and Russia agreed to raise output in May by 411,000 barrels per day. 

This is a part of its plan to unwind the voluntary production cuts of 2.2 million barrels a day. The unwinding begins from April, when the eight members are expected to raise oil production by 135,000 barrels a day. 

The market was expecting OPEC to announce a similar increase in May as well. However, the hefty amount weighed on crude oil prices, dragging them to a more than four-years low. 

As a result, Saudi Aramco had also cut crude prices, which hinted at a possible dip in demand in Asia, particularly China. China is embroiled in a heated trade war battle with the US, which is expected to weaken fuel demand in the country going forward. 

Saudi Arabia is the second largest crude supplier to China after Russia.