Saudi Arabia will sharply reduce term crude sales to China next month as the coronavirus outbreak slashes demand in the world's top oil importer. It comes as Riyadh prepares to join Opec and non-Opec allies to discuss deeper production cuts in the wake of the epidemic.
Chinese refiners have requested a cut of at least 400,000 b/d in their Saudi allocations in March, market participants said. It highlights the extent to which consumption has been squeezed — an Argus survey indicates Chinese refinery throughput fell by 3.3mn b/d on the month to 9.8mn b/d in February.
Saudi Arabia has focused on increasing its foothold in Asia-Pacific in recent years, with state-run Saudi Aramco lifting contracted crude sales to China by around 150,000 b/d to 1.82mn b/d in 2020. Direct Saudi crude sailings to China averaged 1.52mn b/d last year, according to Argus tracking data.
The drop in China-bound crude allocations next month comes as Saudi Arabia prepares to join its Opec and non-Opec partners to discuss the group's output strategy for the remainder of the year. The alliance of producer countries — known as Opec+ — is already committed to a collective output cut of 1.7mn b/d in the first quarter, with Saudi Arabia pledging an additional 400,000 b/d voluntary reduction if other participants stick to their quotas.
Earlier this month, the Joint Technical Committee (JTC), which advises Opec+, agreed to recommend that the group should cut by a further 600,000 b/d in the second quarter to help counter the effects of the coronavirus outbreak on global oil demand.
The recommendation has yet to receive Russia's endorsement. Moscow's reticence to respond has fuelled speculation of a rift in the Opec+ group. But Saudi oil minister Abdulaziz bin Salman insisted this week that he is "confident" in the Opec+ partnership and that Russian energy minister Alexander Novak remains "positively engaged" with the group.
The coronavirus outbreak is weighing on the outlook for the global economy and oil demand. It will cut China's economic growth by 0.4 percentage points to 5.6pc this year under the IMF's baseline scenario. Earlier this month, Opec cut its 2020 oil demand growth forecast to 990,000 b/d, down by 230,000 b/d from its previous projection. And the IEA has slashed its oil demand growth outlook for this year by 365,000 b/d to 825,000 b/d.
