Shanghai oil futures is becoming the dominant futures market for Asian oil dollars

Shanghai RMB crude oil futures will gradually be the dominant force behind Asian oil dollars, which will be even more important in the context of China's winning the onshore and offshore oil acquisition race and in RMB internationalisation.

Hedge funds betting big on oil price recovery

Some hedge funds in China have been betting on recovery of oil prices on the Shanghai crude oil futures. Large state-owned oil companies including PetroChina and Sinopec have been delivering oil to RMB crude oil futures contracts.

China's crude oil imports jumped 13% from April 2020 to close to a record 11.11 million barrels per day in May 2020, due to the spread of RMB denominated crude oil futures traded in Shanghai and an increase in refinery capacity.

Apart from the Shanghai crude futures and recovering crude processing rates, another factor of China’s near-record imports of crude was that the independent refiners – the so-called teapots—continued to actively procure oil, most likely because of the low prices, OilX’s analysts Juan Carlos Rodriguez and Valantis Markogiannakis noted.

China is storing a large amount of crude oil, according to the data provided by OilX on June 4 In recent two months, Chinese buyers' crude oil imports from Saudi Arabia have increased by 800,000 barrels per day, while Iraq's imports have also increased by 400,000 barrels per day.

According to data from Refinitive, Chinese buyers are and will continue to be the most important driving factor for the growth of global oil demand. Considering that the current low oil price period will not last and the future international oil price will gradually rebound, According to the same data, China has increased its strategic oil reserves to 503 million barrels, which is also the largest indicator of China's storage capacity. It is expected that China's reserve capacity utilisation rate will exceed 90% in 2020. According to a Wood McKenzie's report released last week, China's crude oil inventories in 2020 will probably increase significantly to 1.15 billion barrels.

China crude import records have been increasing for 17 consecutive years

According to the latest data from Chinese Customs, China's crude oil import record has been set for 17 consecutive years. In 2019, China's crude oil processing volume reached 651.98 million tons, an increase of 7.6%. According to analysis by Clyde Russell, a Reuters columnist, China's strategic and commercial inventory replenishment rate doubled in the first quarter of 2020 with the advantage of low oil price, and provided oil market in rapid decline earlier this year with some much needed support.

5x increase in imports compared to 1st 3 months of 2020

According to China's official data, China's refineries imported nearly 2 million barrels of crude oil a day in the first three months of 2020, compared to 11.1 million barrels of crude a day in May 2020 alone. In contrast, only 1.07 million barrels / day were put on hold in the first quarter of 2019, while the difference between crude oil in the same period shows that China doubled the filling speed of its strategic and commercial inventory in 2020, and another data shows that there is a significant increase in China's crude oil depots. According to OilX, in March 2020, China's refinery output surpassed the United States for the first time as the world's largest oil refining output country, thanks to the acceleration of the resumption of production of Chinese refineries.

Winning the acquisition race

At the same time, in fact, in recent years, China's energy companies have begun to purchase and invest in a large number of oil and gas fields around the world. It is generally believed that most of the crude oil actually enters the strategic oil reserves. Since 2015, China's oil companies have wisely allowed some countries to use the way of oil repayment loans to repay debts, and also increased the crude oil reserves quantity.

In response, RT, a Russian media, further reported that China is winning the offshore oil competition, and China's international influence in the field of offshore oil is growing rapidly, because its oil giants are willing to invest in places other companies do not even consider. In addition, China's banks are willing to provide billions of dollars of loans to oil producing countries in Latin America and Africa to help them to develop their reserves.