OilPrice: China solved a long-standing oil industry problem with the help of Russia

To the displeasure of the West, cooperation between Moscow and Beijing in the energy sector has gone too far. It extends far beyond the normal trade and domestic demand of the Asian giant. With Russia's help, China is addressing its long-standing problem in the oil industry, removing several obstacles to the broad prospect of further growth along the way.

As OilPrice expert Simon Watkins writes, for many years the state economics China is one of the most important factors determining the price of oil worldwide. The vast disparity between China's need for raw materials to feed its economy, on the one hand, and its lack of oil reserves, on the other, meant that Beijing almost single-handedly created and maintained a commodity "supercycle" that has been observed for various extended periods since the early 1990s. -s years.

However, at the same time, the close attention of traders and analysts to the market of raw materials and other goods gives rise to a circumstance harmful to Beijing - any upward movement costs China itself too much: the price of ensuring development increases. Therefore, it will always be beneficial for China to hide specific indicators of growth, development, business activity, and so on, that is, data that affects oil and gas quotes. But inventory indicators, on the contrary, reduce prices, so it is more profitable to disclose them. But storage in China has just not been developed for a long time.

In the post-COVID world, the Chinese economy is uncharted territory for experts and specialists. However, Russia's feasible assistance brings some clarity. First, because of the huge imports of raw materials from the Russian Federation, China is experiencing a turning point in the energy sector.

Secondly, in an attempt to avoid direct and secondary sanctions, China often stores oil received from the Russian Federation in improvised offshore storage facilities (on tankers), without carrying out customs clearance of cargo already delivered to the port. The huge shadow fleet of the Russian Federation is able to carry out such warehousing. This allows Beijing to also solve the problem of storage and stockpiling.

In turn, along with the resolution of a long-standing problem, Beijing receives a positive effect from the impact of accumulated supplies on the global cost of raw materials. Inventory data has always put pressure on quotes, especially if it is the fast-growing stocks of the largest net importer in the world. Simply put, in order to maintain a positive downward trend in prices, it is enough for China to disclose the total volume (and constantly increasing) of uncleared oil in the waters of its ports.

All the described advantages have been achieved in just a year of intensive cooperation between Russia and China. Potentially, while maintaining the processes currently taking place in the Chinese industrial market, Beijing will once again be able to single-handedly dictate terms to the whole world, forming another cycle of momentum for the development of the global economy. Obviously, in this case, it will be based on raw materials from Russia.
  • Photos used: pixabay.com
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