As the largest oil importer in the world, China is experiencing a surge in oil prices, reaching record levels due to instability from the ongoing conflict in the Middle East. Analysts suggest that China's strategy of reducing oil imports and tapping into its reserves to stabilize international prices is nearing its limits.
Shanghai crude oil futures hit $129, surpassing Brent crude
According to the Financial Times, on September 16, Shanghai crude oil futures traded at $129 per barrel, exceeding the previous high of $121.80 recorded at the onset of the Iran conflict. Following an attack on Saudi oil pipelines by Iranian-linked militias that halted operations over the weekend, prices surged by 14%.
Shanghai crude oil futures typically trade at levels comparable to Brent crude, which was priced at approximately $108 per barrel on the same day. This means that Shanghai futures are now trading at a premium of $21 over Brent.
The rising prices are largely attributed to Chinese refiners actively securing crude oil amid growing concerns over Middle Eastern exports.
This year, China has reduced its oil imports and utilized its reserves to mitigate the impact of the Iran conflict, also raising domestic gasoline and diesel prices to curb consumption. These measures have helped prevent a more significant global spike in oil prices.
However, as the conflict continues, China's capacity to defend against price increases using its reserves is diminishing, prompting a trend of increasing oil imports once again.
Reports indicate that China's daily oil imports, which exceeded 12 million barrels before the conflict, plummeted to 7.1 million barrels in June. They rebounded to 8.9 million barrels in August, with September's imports expected to be around 9 million barrels.
The Financial Times noted, "China has ended its 'extreme diet' and is starting to buy oil again." Guy Wolf, global market analyst at Marex, stated, "Shanghai crude oil futures are significantly influenced by Middle Eastern oil, and the defensive measures China has built up are gradually weakening." He predicted that as the war drags on, China's actual oil reserves will continue to dwindle.
Saudi pipeline recovery efforts face ongoing supply chain uncertainties
The backdrop to China's oil supply concerns is the disruption of Saudi Arabia's oil exports.
With the U.S.-Iran conflict effectively blocking oil shipments through the Strait of Hormuz to Asia, Saudi Arabia has been utilizing the East-West pipeline, a crucial transport route that spans approximately 1,200 kilometers, to continue its oil exports. This pipeline transports oil from Saudi Arabia's eastern fields across the Arabian Peninsula to the Red Sea port of Yanbu.
However, on September 12, Iranian-backed Iraqi militias attacked this pipeline, halting its operations. Additionally, the Iran-aligned Houthi rebels have rapidly expanded their influence in the Bab el-Mandeb Strait, raising alarms over Saudi oil exports.
In response, Saudi Arabia announced on September 16 that it aims to restore the pipeline's transport capacity to half within a few days and to full capacity within six weeks. The country also plans to increase oil supplies to Asia by transferring oil between vessels at the Port of Sohar in Oman. Following this news, international oil prices saw a temporary easing.
Nevertheless, volatility in oil prices is expected to persist due to ongoing supply uncertainties in the Middle East. The intensified offensive by the Houthi rebels in Yemen poses additional risks to oil production and transportation in major producing countries, including Saudi Arabia.
According to Reuters, on September 16, Saudi forces conducted airstrikes on Houthi targets in Yemen, while the Houthis launched drones and missiles toward major Saudi cities. Saudi Arabia reported intercepting a Houthi drone aimed at the Islamic holy city of Mecca the previous day. The U.S. government has since heightened its travel advisory for Saudi Arabia, urging citizens to reconsider travel to the country.
* This article has been translated by AI.
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