Saudi Arabia plans to increase its crude oil supply to China next year.

During the Asia-Pacific Petroleum Conference (APPEC),Optional forward trading multiple insiders indicated that despite OPEC+ extending its production cut policy to the end of 2023, Saudi Arabia plans to increase crude oil supplies next year to new refineries in China.

Recently, Saudi Aramco, the state-owned company of Saudi Arabia, has been negotiating annual supply contracts for next year with Chinese clients. These negotiations not only support stabilizing Saudi Arabia's Official Selling Price (OSP) but also compete with Russia for the position of China's largest crude oil supplier.

Currently, Russia is China's largest crude oil supplier. Data from China's General Administration of Customs shows that from January to July this year, Russia supplied China with 2.1 million barrels of crude oil per day, significantly higher than Saudi Arabia's 1.8 million barrels/day in the same period. However, data from GAC Group indicates that while Saudi oil shipments grew by 4.7% in the first seven months compared to last year, its market share decreased from 17.2% to 16%.

According to sources, Saudi Arabia plans to sign a series of supply contracts with China by the end of October this year, which will extend into 2024. It is expected that the amount of crude oil supplied by Saudi Arabia to China will significantly increase by then. Sources also noted that the additional supplies would primarily come from Zhejiang Petrochemical (ZPC), whose daily production will reach 900,000 barrels.

Meanwhile, market sources and analysts pointed out that the Yulong Petrochemical project in Shandong Province, with an expected daily production of 400,000 barrels, and the Shenghong Petrochemical project in Jiangsu Province, expected to reach 320,000 barrels, may increase their imports of crude oil from Saudi Arabia next year. According to S&P Global data, in the first seven months of this year, Shenghong Petrochemical imported a monthly total of 2 million barrels of Arabian Light crude oil and 2 million barrels of Arabian Heavy crude oil, accounting for 6.7% of its total crude oil imports during the same period.

Additionally, Guangdong Petrochemical, a subsidiary of CNPC with a daily production of 400,000 barrels, also plans to increase its purchases of crude oil from Saudi Arabia next year. S&P Global data shows that Guangdong Petrochemical has already shipped three batches totaling 3.15 million barrels of Arabian Light and Heavy crude oil since the beginning of the year.

Insiders noted that although most of China's existing and newly built refineries are designed to process crude oil from the Middle East, it's still unclear whether energy contracts between Saudi Arabia and China will be settled in Renminbi amid China's efforts to internationalize its currency.

Saudi Arabia's increase in crude oil supply to China also has deeper political considerations. The BRICS countries—Brazil, Russia, India, China, and South Africa—have previously invited Saudi Arabia, the UAE, Iran, Argentina, Egypt, and Ethiopia to join. Through increasing crude oil supply to China, Saudi Arabia seeks China's support for its admission into the BRICS nations.

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