APPEC: Saudi Arabia set to increase crude supplies to China in 2024

Saudi Arabia is set to increase crude supplies to China in 2024 for the new refineries, despite the OPEC+ kingpin announced to extend its production cut until end-2023, several sources with knowledge about the matter told S&P Global Commodity Insights during APPEC.

The expectation came as the state-owned Saudi Aramco started a new round of term supply contract negotiations with its Chinese customers for 2024, which will help the world's largest exporter of oil to compete for China's top crude supplier against Russia when buoying high OSPs.

Currently, Russia is the top crude supplier to China with 2.1 million b/d of arrivals in January-July, 300,000 b/d higher than the 1.8 million b/d delivered by Saudi Arabia in the same period, data from China's General Administration Customs showed.

The crude shipments from Saudi Arabia gained 4.7% year on year in the first seven months but the market share fell to 16% from 17.2%, GAC data showed.

"There will be a number of term contracts to be signed by the end of October for 2024, and we will see an increase in the volume," a source close to the matter told S&P Global.

ZPC leads the rise

The growth will be led by the 800,000 b/d Zhejiang Petroleum & Chemical, which started to take 480,000 b/d of Arab crudes for September loading under the new term contract signed in March, a senior source close to the plant said.

This means an 84.6% increase from the complex's Arab crude inflows of 260,000 b/d in January-July, S&P Global data showed, and the volume will be sustainable on the back of Saudi Aramco's 10% stake in Rongsheng Petrochemical taken in March. Rongsheng Petrochemical is ZPC's parent company.

Meanwhile, the 400,000 b/d Yulong Petrochemical being constructed in Shandong province is set to take crude imports from Saudi Arabia in 2024 when it is commissioning in the first half of the year, market sources and analysts said.

The 320,000 b/d Shenghong Petrochemical in Jiangsu province is also likely to pursue an increase in the term contract as it has been in commercial operation since end-2022, a source with knowledge of the matter said.

The private Shenghong Petrochemical took 2 million barrels of Arab Light and 2 million barrels of Arab Heavy per month in the first seven months of 2023, accounting for 6.7% of its combined crude imports in the period, S&P Global data showed.

In addition, PetroChina's 400,000 b/d Guangdong Petrochemical in Guangdong province is also set to lift its Arab crude procurement in 2024, several sources with the state-owned oil giant said.

Data from S&P Global Commodity at Sea showed the plant got 3.15 million barrels of Arab Light and Arab Heavy in three shipments so far this year.

Yuan settlement

However, the sources said it is unclear if some of the term barrels would be settled in Chinese yuan amid Beijing's effort to internationalize the currency.

"Whether [to] use yuan or not, is a decision can only be agreed [upon] and made by Riyadh and Beijing. We just implement in the commercial side," a source with knowledge about the deals said.

In China, most of the refineries, new and old, were designed to process Middle Eastern crudes.

As a result, a closer alliance has been important between the top producer and the top crude net importer.

The BRICS bloc, which earlier consisted of Brazil, Russia, India, China and South Africa, has invited Saudi Arab to join along with the UAE, Iran, Argentina, Egypt and Ethiopia.

Riyadh's potential ascension to BRICS has come following its closer alliance with China. Saudi Arabia joined the Shanghai Cooperation Organization March 29 and re-established ties with Iran, after Chinese mediation.