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Oil group Saudi Aramco is betting on major projects. Thus, it is buying shares in a Chinese refinery and planning the construction of, a Chinese refinery. At the same time, the company is concluding large supply contracts for the next few years. Exports to China are expected to increase by 40 percent.

Saudi Arabia is China's largest supplier, but is neck and neck with Russia, which is lowering its prices. With long-term contracts, Riyadh is trying to secure its role as Beijing's largest importer. Those contracts could be a blow to Russia, which desperately needs money, especially as it suffers from Western economic sanctions and a high-cost war in Ukraine.

In the news: Saudi Aramco and Chinese companies strike plenty of deals.

  • Just last Monday, the Saudi oil group announced that it had reached an agreement with Rongsheng Petrochemical to buy 10 percent of its shares for $3.6 billion. The . The deal comes with oil deliveries: 480,000 barrels per day delivered directly to China's largest refinery.
    • That has a production capacity of 800,000 barrels a day. It also produces more than 4 million tons of ethylene a year.
  • The day before, also reached an agreement with two other Chinese companies. With them, the oil group would establish a joint venture and together build a refinery with a production capacity of 300,000 barrels per day to be completed by 2026. The Saudis will supply 210,000 barrels per day.
    • Saudi Aramco will own 30 percent of that refinery. Majority shareholder with 51 percent of the shares will be Chinese arms giant China North Industries Group. Something that is unlikely to please the United States. The third player is the investment company Panjing Xincheng Industrial Group with 19 percent of the shares.

The numbers: These indicate a sharp increase in deliveries.

  • According to these two deals, China will have to import 690,000 barrels a day from Saudi Arabia.
  • Knowing that China was already importing 1.75 million barrels per day in 2022. This would be a 40 percent increase.

Shoulder to shoulder with Russia

The challenge: Staying No. 1 in China.

  • By 2022, Saudi Arabia was China's largest supplier, the world's largest oil importer. Russia landed in second place, with 1.72 million barrels per day (up 8 percent from 2022).
  • However, that situation has already changed since New Year's Day.
    • Russia is lowering prices to sell its barrels. Mainly because of the European embargo on Russian crude oil that took effect in December. The country has too much oil and wants to get rid of it.
  • Riyadh is now striking back with a huge, long-term deal. Amin Nasser, CEO of Saudi Aramco, said recently that they are "the key to maintaining market share in China without having to lower crude prices."

The bottom line: Is this new contract a blow to Russia?

  • The reverse calculation exercise is also possible. If oil supplies from Saudi Arabia increase, those from Russia may come under pressure.
    • For example, there is the effect of the post-covid stimulus (this remains an unknown factor in the markets), with China importing more oil in January and February than in 2022.
    • The 40 percent increase from Saudi Arabia could certainly put pressure on Russian imports. These might not increase if Chinese needs are already guaranteed by long-term contracts with Saudi Arabia.
  • That increase also proves that Russia is having more trouble getting rid of its oil than is commonly thought. The idea that Asia will pick up oil anyway that Russia no longer sells in Europe is undermined as China diversifies its oil suppliers.

(dv/fjc)

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