Saudi Arabia is once again China's top oil exporter -- but the reason why is bad news

Oil exporters are continuing to fight over China.

The latest trade data from China published last week showed that crude oil imports stood at 6.3 mb/d in January.

That’s 305 kb/d lower year-over-year, which makes it the first yearly decline since May 2015, according to Barclays analyst Feifei Li.

Notably, Russia had the biggest monthly drop in exports to China in January after overtaking the Saudis as the biggest crude exporter to China in December.

Russia exported 796 kb/d to China in the first month of 2016, down 341 kb/d month-over-month.

Barclays’ Li suggested this slowdown could have to do with China’s teapot refineries, which are small, private oil refineries in China that have been buying up crude oil with the intention of exporting the final product, writing (emphasis ours):

Russia ESPO blend has been popular among Chinese teapot refineries, which received crude import quotas and started importing crude oil last year. However, according to [research firm] Argus, teapot refineries are facing credit constraints from banks. At least two ESPO cargos were defaulted by Chinese teapot refineries due to credit issues.

And so while the broader story would seem to focus on the fortunes of major exporters like Saudi Arabia and Russia fighting over market share in China, it’s clear that oil buyers in the world’s second-largest economy are dealing with their own issues which don’t paint a pretty picture of the situation there.

In January, China’s imports from Saudi Arabia were virtually unchanged at 1 mb/d against 1.1 mb/d the month prior. So thanks to the lower total imports, the Saudis’ market share increased to 15.9%, the highest level since June 2015. Russia and Saudi Arabia have been vying for market share in China for some time now.

Last month, Russia seemed to have the upper hand, with RBC Capital Markets’ Michael Tran nothing that this was a big deal as the Saudis had only lost the top spot six times in the past five years.

Moreover, Tran added, that the Saudis increased exports to China by only about 120 kb/d over the past five years — a growth rate that was beaten by several countries including South Sudan and Colombia.

Interestingly, part of Russia’s success in China in 2015 had been attributed to its willingness to accept Chinese yuan denominated currency for its oil.

(And not, as others have suggested, because of any sort of allegiance to the Sino-Russo friendship.)

However, the Saudis had a few of their own market-share-capturing tricks.

“Owning refineries in key demand regions guarantees market captivity,” Tran previously wrote. “This has historically been part of the Saudi playbook and the recent reported interest in acquiring stakes in Chinese refineries is a strategic move that would guarantee the Kingdom a seat at the table in the preeminent region for demand growth.”

But in any case, the big takeaway from China’s latest trade data, Li argues,”showed major crude oil exporters continue to fight for market share in China,” even as the situation there appears unsteady.

NOW WATCH: This model was dropped from her agency for her size — now she’s the face of Victoria’s Secret’s top competitor

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at