China and India buy more oil, cashing in on price cuts by Saudi Arabia

 

China oil imports in August

The prices of crude oil turned green on the screens in the stock markets on Wednesday across the world – finally.

As of 10:30 GMT, WTI and Brent prices recorded $68.61 and $71.88 respectively, a rise of 0.51% and %40 in that order.

Some analysts attribute the rise in price today to a boost in China’s crude oil imports in August; it’s not official, though. According to China’s National Statistics Bureau, its economy suffered on many fronts due to the new outbreaks of the pandemic.

China, however, managed to bring it under control in record time, as had done on a few occasions since the very first outbreak in China in 2020.

China does not normally face what the West faces when it comes to imposing arbitrary, but deemed essential, lockdowns. Nor does it ever face anti-vaccine protests; China managed to vaccinate more than 60% of its population with its own, home-grown vaccines.

The optimism expressed by analysts about the revival of China’s oil imports make sense in light of Saudi Arabia’s move to reduce the price of crude oil to Asia. Since the price cut was substantial, China, the world’s largest crude oil importer, may encourage its refineries to buy more from the Kingdom.

China is not the only country in the region that is going to cash in on the Saudi oil price cut. India, the world’s third largest importer of the crude oil, is going to do the same, as the economic activities in the latter are gathering momentum.

Both China and India may have been frustrated with the Kingdom, when their pleas for an increase in production were not heeded by the Saudis in the past few months. They, however, cannot afford to look elsewhere for substitutes at the expense of Saudi imports, because of the close proximity to the source that inevitably reduces the transport costs.

The recent warning by the OPEC+ about a possible surplus of crude oil in the markets, coupled with Saudi Arabia’s sudden decision to reduce the price of oil for Asia, did set alarm bells in the markets on Monday.

In addition, the recent US job data did not excite the markets either. The latter, however, brought down the value of the US dollar against other major currencies and it did not create the desired effect in the markets either.

Usually, a weaker dollar boost oil imports as the buyers can get more for their local currencies.

When the Hurricane Ida battered the US Gulf Coast, severely hampering the US oil production in the region, analysts expected a rise in oil price. It, much to their surprise, did not materialise. On the contrary, the slide of oil price continued - at a modest pace, though.

The pandemic in Asia is still very high, although the rate of infections in certain countries shows a downward trend. Therefore, the crude oil imports from these countries will not pick up for some time.

The resilience of the people to make a faster recovery in the region remains high, though.


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