Russian exports to China surged to a record in May, with the OPEC+ producer overtaking its cartel ally Saudi Arabia as the top supplier to the world’s biggest importer. While Iran has cut its oil prices to remain competitive in the Chinese market, it’s still maintaining robust flows, likely in part due to rising demand as China eases strict virus restrictions that had crushed consumption.
“The only competition between Iranian and Russian barrels may end up being in China, which would work entirely to Beijing’s advantage,” said Vandana Hari, founder of Vanda Insights in Singapore. “This is also likely to make the Gulf producers uneasy, seeing their prized markets taken over by heavily discounted crude.”
An emerging disparity between the price of oil available outside of NATO and within NATO is not sustainable over the long-term. Eventually, that arbitrage will close. In a short-term scenario, Europe will economise, everywhere else will do whatever is necessary to boost supply. That would mean building pipelines, offshore drilling and relaxation of environmental concerns. At the same time, alternatives like new nuclear will need to be unabashedly championed. Without that concerted effort, a long-term scenario is industrial capacity will migrate to where energy is cheapest. That would gut Europe’s export model.
Natural gas in Europe continues to march higher. Brent crude oil continues to steady from the $110 area and the front month contract continues to hold a succession of higher reaction lows.
Both Shell and BP are firming following reversions toward their respective 200-day MAs.