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China’s extraordinary economic expansion almost singlehandedly drove a supercycle in key commodities since the mid-90s.
This robust performance across several major sectors in China’s economy is in sharp contrast to the growth drivers seen last year.
China continues to buy oil from Russia and Iran at a discounted price.

Since the mid-1990s, China’s extraordinary economic expansion almost singlehandedly drove a supercycle in key commodities prices it required to power such growth, including oil and gas. In 2013, it became the world’s largest net importer of total petroleum and other liquid fuels and, as late as 2017, its still high rate of economic growth allowed it to overtake the U.S. as the largest annual gross crude oil importer in the world. Late 2019 saw much of this activity grind to a halt as Covid hit the country, and the economic slowdown was exacerbated by its Draconian ‘zero-Covid’ policy that saw complete shutdowns of major economic centres at the slightest hint of infection. However, 2023 saw it achieve its official gross domestic product (GDP) growth target of “around 5 percent” – posting 5.2 percent in the end. The same official target is in place this year, with the key questions for oil markets being whether this will be achieved and if so, how easily?

16 April saw China’s National Bureau of Statistics release the country’s Q1 GDP figure, which showed a 5.3 percent year-on-year increase. This was way above consensus analyst expectations of 4.6 percent and was also a rise from the Q4 2023’s 5.2 percent. “Aside from the continued decline in the property sector, policy support is filtering through investment,” Eugenia Victorino, head of Asia strategy for SEB in Singapore exclusively told OilPrice.com. “With property sales now 60 percent lower than their mid-2021 peak, transaction volumes are now comparable to levels last seen in 2012,” she added…

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The Four Key Reasons Why The U.S. Will Never Stop Targeting Russia’s LNG Sector

May 1, 2024

The Four Key Reasons Why The U.S. Will Never Stop Targeting Russia’s LNG Sector

LNG has become the most important swing energy source in an increasingly insecure world.
Energy exports remain the foundation stone of Russia’s essentially petro-economy.
Russia’s LNG industry is closely associated in Russia with President Vladimir Putin personally.

Perhaps even more than its targeting of Russian oil exports, the U.S. has been laser-focused on its liquefied natural gas (LNG) sector as they key area it wants to effectively destroy over the long term. Last week’s suspension of Russia’s flagship Arctic LNG-2 project by lead operator Novatek is the latest of Washington’s trophies in this regard, but it is very unlikely to be the last. As U.S. Assistant Secretary of State for Energy Resources Geoffrey Pyatt said on 24 April: “[Novatek] has recently had to suspend production at its Arctic LNG-2 liquefaction facility, in part because of sanctions that the Biden administration has led.” He added: “We’re going to keep tightening the screws […] We’re going to continue to designate a broad range of entities involved in development of other key energy projects, future energy projects as well, and associated infrastructure including the Vostok Oil Project, the Ust Luga LNG Terminal, and the Yakutia Gas Project.” So, why is the U.S. so concerned about Russia’s LNG sector?

The first of four key reasons is that LNG has become the most important swing energy source in an increasingly insecure world. Unlike oil or gas that is transported through pipelines, LNG does not require years and vast expenses to build out a complex infrastructure before it is ready to transport anywhere. Once gas has been converted to LNG, it can be shipped and moved anywhere within a matter of days and bought reliably either through short- or long-term contracts or immediately in the spot market…

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The New Global Oil Market Order Hangs In The Balance After Hamas Attacks Israel

October 10, 2023

The New Global Oil Market Order Hangs In The Balance After Hamas Attacks Israel

Palestinian political and military organisation Hamas launched coordinated multi-pronged attacks by land, sea, and air against Israel last weekend.
The potential for the Hamas attacks on Israel to suck in other Arab states into the conflict, and for it to then become another proxy war could have major ramifications for a large number of countries.
Soaring oil prices as a result of renewed tensions in the Middle East could lead to economy-crippling levels of inflation in the West.

In what turned out to be extraordinary timing, October 3 saw a Western coalition of France’s TotalEnergies and Italy’s Eni, plus Qatar Energy, apply for the second licensing round on oil and gas blocks 8 and 10 in Lebanese waters, while only four days later Palestinian political and military organisation Hamas launched coordinated multi-pronged attacks by land, sea, and air against Israel. Lebanon is a core member of the Iran-dominated Shia Crescent of Power, which both China and Russia have long seen as the foundation stone for their expansion of power across the Middle East as a whole, as analysed in depth in my new book on the new global oil market order. Lebanon’s political and military organisation, Hezbollah – like its Palestinian counterpart Hamas – vows Israel’s destruction and praised Hamas for its “heroic operation” against Israel on October 7. Both paramilitary groups receive multi-layered support from Iran’s financial, intelligence, and military networks and each of these support facilities are inextricably linked to China and Russia, as also fully examined in my new book. The potential for the Hamas attacks on Israel to suck in other Arab states into the conflict, and for it to then become another proxy war – to add to that still raging in Ukraine – between the U.S. and Russia (and China) appears large…

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Is Saudi Arabia Exaggerating Its Oil Production Potential?

July 5, 2022

Is Saudi Arabia Exaggerating Its Oil Production Potential?

For years, Saudi Arabia has made some pretty hefty claims about its oil potential.
It is becoming increasingly clear, however, that the Kingdom may be stretching the truth a little too far.
Analysts are now beginning to doubt that Saudi Arabia even has the reserves it says it has.

For many years now, Saudi Arabia has been wildly exaggerating every metric connected to its oil business, from how much crude it can produce to its level of reserves and everything in between, as analyzed in depth in my first book on the oil sector in 2015 and the latest one in 2021. Why does it lie so much and so often about these figures? Because without the power it has in the world directly associated with its crude oil production, spare capacity, and reserves it has no real power at all, so enormously exaggerating each of these figures is geared towards puffing itself up in terms of its geopolitical importance. The problem Saudi Arabia has right now, however, is that the U.S. and all other developed market countries whose economies are suffering under the weight of ongoing high oil prices are pressuring Riyadh to deliver on these claims, in order to bring these oil prices down. If Saudi Arabia had not been lying all these years about the amount of oil it can produce then it will not have a problem, but it has been, so it does.

To the figures themselves, then, and firstly, Saudi Arabia’s crude oil reserves figures. At the beginning of 1989, Saudi Arabia claimed proven oil reserves of 170 billion barrels, but only a year later, and without the discovery of any major new oil fields, the official reserves estimate had somehow increased by 51.2 percent, to 257 billion barrels…

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China Could Cause The Next Massive Crash In Oil Prices

December 8, 2021

China Could Cause The Next Massive Crash In Oil Prices

China has been one of the main drivers of the 2000-2014 commodities supercycle
Slower economic growth and a huge debt bubble pose a tremendous risk to oil markets
China’s Evergrande crisis shows the fragility of the Chinese debt market

Given the extreme disconnect between China’s huge economy-driven oil and gas needs and its minimal level of domestic oil and gas reserves, the country’s influence over oil prices has long been profound. As a result of this imbalance, China almost alone created the 2000-2014 commodities ‘supercycle’, characterized by consistently rising price trends for all commodities that are used in a booming manufacturing and infrastructure environment. This was a product largely of the 8 percent-plus annual GDP growth recorded by China over that period, with many spikes well above 10 percent and only a relatively short move down in economic growth at the onset of the Great Financial Crisis. Aside from huge quantities of imported oil and gas, this massive economic growth was fuelled by enormous debt piled up but then hidden away in various financial mechanisms that China believed it could simply pay off eventually through its rapid economic growth. Developments in the last week or so hint that both of these bubbles may be set to burst, taking the big bid in oil out of the market.

“Despite some easing in the energy market, downside risks to growth persist, and we continue to expect GDP growth to ease to 5.2 percent in 2022 from an estimated 8.2 percent growth in 2021,” Eugenia Fabon Victorino, head of Asia Strategy for SEB, in Singapore, told OilPrice.com last week. “Easing in financial conditions will not spare the property sector from further pains, and bond defaults will continue to test investors’ nerves,” she said.

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Iran’s Huge Caspian Gas Find Is A Geopolitical Gamechanger

August 22, 2021

Iran’s Huge Caspian Gas Find Is A Geopolitical Gamechanger

Iran last week revealed a huge new gas deposit located in the Iranian sector of the Caspian Sea. The ‘Chalous’ structure is to be developed with the intention of forming a new gas hub in northern Iran to complement the southern gas hub centred on the massive South Pars field.

The principal named developer of the Chalous site is Iran’s Khazar Exploration and Production Company (KEPCO) but technical and financial assistance will also come from Russia and China. If the initial estimates of the gas reserves held in the Chalous deposit are correct then Iranian gas will be able to supply at least 20 percent of Europe’s gas needs. However, the size, price, and destination of this gas will be co-ordinated with Russia, adding to the energy power that Moscow has over Europe, already a key matter of contention between Europe and its NATO partner, the U.S. According to KEPCO’s chief executive officer, Ali Osouli, the Chalous structure is estimated to hold gas reserves equivalent to a quarter of the supergiant South Pars gas field, or around 11 of its phases. South Pars has an estimated 14.2 trillion cubic metres (Tcm) of gas reserves in place plus 18 billion barrels of gas condensate and already accounts for around 40 percent of Iran’s total estimated 33.8 tcm of gas reserves and about 80 percent of its gas production. The 3,700-square kilometre (sq.km) South Pars site is part of the 9,700-square km basin shared with Qatar (in the form of the 6,000-square km North Dome) but the Chalous structure lies squarely within Iran’s sector of the Caspian Sea. This has not so far been affected by the recent disputes between the five littoral states that share oil, gas, and other rights in it: Russia, Iran, Kazakhstan, Turkmenistan and Azerbaijan.

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How Much Oil Can Saudi Arabia Really Produce?

June 24, 2021

How Much Oil Can Saudi Arabia Really Produce?

For decades, the true numbers relating to Saudi Arabia’s level of crude oil reserves and production have been a subject of much debate and confusion, not helped by the obfuscation from the Saudis over precisely what these numbers are. The reason for obfuscation is that Saudi Arabia’s only source of real power in the world begins and ends with its oil reserves and production, so the higher these numbers, the more the power, and the lower the number the less the power. In recent weeks this debate has become even more pronounced in the run-up to Saudi Arabia’s latest bond offering and in the debate oversupply and demand in the oil market over the remainder of this year and beyond. As detailed below, much of what Saudi Arabia has said about its oil reserves, current production, and likely future production is an exaggeration made for the purposes of self-aggrandizement but despite that, the numbers have increased somewhat compared to where they were 10 years ago. To begin with the claimed crude oil reserves numbers: these have been a work of stunning bravado and almost complete fiction since 1990 when the Kingdom suddenly increased the official number from 170 billion barrels to 257 billion barrels, despite absolutely no new oil discoveries or improvements in recovery rates being made, as highlighted in my last book on the oil markets. Shortly thereafter, Saudi Arabia increased its official crude oil reserves numbers again, to 266.4 billion barrels, a level that persisted until a slight increase in 2017, to 268.5 billion barrels. Over the same period – in fact, from 1973 to last month – Saudi Arabia has pumped an average of 8.162 million barrels per day (bpd)…

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Game-changing Iranian Pipeline Set To Launch In March

January 28, 2021

Game-changing Iranian Pipeline Set To Launch In March

The geopolitically game-changing Goreh-Jask pipeline project saw a major advance last week with the commencement last week of offshore pipe-laying operations. The implementation of this operation markets the first stage of the offshore development of the Jask Oil Terminal and, according to the Pars Oil and Gas Company, this offshore section of the early-production phase of the project will be completed with the construction of two 36-inch offshore pipelines running for around 12 kilometres and a single buoy mooring with ancillary equipment. Overall, the company added, the early-production phase of the Jask Oil Terminal Development Project is 70 per cent complete, allowing the project to come online by late March.

After the completion of this first phase of offshore pipeline laying, the Goreh-Jask pipeline will begin full pumping tests aimed at ascertaining its capacity to transfer 350,000 barrels per day (bpd) of light, heavy, and ultra-heavy crude oil through the 1,100 km-long, 46 inch diameter pipeline that runs from the Goreh oil terminal in the north-west Bushehr Province to Mobarak Mount in the western Jask region along the Sea of Oman. This will involve the construction and deployment of 83 42-inch valves relating to the gate, control and emergency shut-off functions in the pipeline project, six smaller pipelines, five pump houses, three stations for receiving and sending pipeline pigs, 10 power stations, 400 kilometres of transmission lines, three single point moorings, subsea pipelines, and a stilling basin.

The initial focus of the oil-transfer chain across the Goreh-Jask pipeline will be the huge oil fields cluster in the West Karoun region, which are the current focus of plans between Iran and China to boost short-term oil production as part of the two countries’ 25-year plan…

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Saudi Arabia Refuses To Learn From Its Two Failed Oil Price Wars

August 21, 2020

Saudi Arabia Refuses To Learn From Its Two Failed Oil Price Wars

Having failed to achieve the slightest semblance of success in the two oil price wars that it started – the first running from 2014 to 2016, and the second running from the beginning of March to effectively the end of April this year – it might be assumed that key lessons might have been learned by the Saudis on the perils of engaging in such wars again. Judging from various statements last week, though, Saudi Arabia has learned nothing and may well launch exactly the same type of oil price war in exactly the same way as it has done twice before, inevitably losing again with exactly the same catastrophic effects on it and its fellow OPEC members. At the very heart of Saudi Arabia’s problem is the collective self-delusion of those at the top of its government regarding the Kingdom’s key figures relating to its oil industry that underpins the entire regime. These delusions are apparently not discouraged by any of the senior foreign advisers who make enormous fees and trading profits for their banks from Saudi Arabia’s various follies, most notably oil price wars. It is, in the truest sense of the phrase, a perfect example of ‘The Emperor’s New Clothes’, although in this case, it does not just pertain to Crown Prince Mohammed bin Salman (MbS) but to all of the senior figures connected to Saudi Arabia’s oil sector. One of the most obvious examples of this is the chief executive officer of Saudi Arabia’s flagship hydrocarbons company, Saudi Aramco (Aramco), Amin Nasser, who said last week – bewilderingly for those who know even a modicum about the global oil markets – that Aramco is to go ahead with plans to increase its maximum sustained capacity (MSC) to 13 million barrels per day (bpd) from 12.1 million bpd.

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The Inevitable Outcome Of The Oil Price War

March 20, 2020

The Inevitable Outcome Of The Oil Price War

One might reasonably posit that when Crown Prince Mohammed bin Salman (MbS) signalled that Saudi Arabia was once again going to produce oil to the maximum to crash oil prices in a full-scale oil price war, Russian President Vladimir Putin probably fell off the horse he was riding bare-chested somewhere in Siberia because he was laughing so much. There is a phrase in Russian intelligence circles for clueless people that are ruthlessly used without their knowledge in covert operations, which is ‘a useful idiot’, and it is hard to think of anyone more ‘useful’ in this context to the Russians than whoever came up with Saudi’s latest ‘plan’. Whichever way the oil price war pans out, Russia wins.

In purely basic oil economics terms, Russia has a budget breakeven price of US$40 per barrel of Brent this year: Saudi’s is US$84. Russia can produce over 11 million barrels per day (mbpd) of oil without figuratively breaking sweat; Saudi’s average from 1973 to right now is just over 8 mbpd. Russia’s major oil producer, Rosneft, has been begging President Putin to allow it to produce and sell more oil since the OPEC+ arrangement was first agreed in December 2016; Saudi’s major oil producer, Aramco, only suffers value-destruction in such a scenario. This includes for those people who were sufficiently trusting of MbS to buy shares in Aramco’s recent IPO. Russia can cope with oil prices as low as US$25 per barrel from a budget and foreign asset reserves perspective for up to 10 years; Saudi can manage 2 years at most.

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Here’s Putin’s Answer To The U.S. Shale Boom

July 9, 2019

Here’s Putin’s Answer To The U.S. Shale Boom

Last week saw Japan’s Mitsui and Japan Oil, Gas and Metals National Corporation agree to buy a 10% stake in Novatek’s Arctic LNG (liquefied natural gas) 2 project for an officially undisclosed price, although Russia’s President Vladimir Putin independently stated that the investment would be around US$3 billion. The fact that Putin himself commented on the deal underlines how important the exploration and development of the Arctic region is for the Russian state as a source of potentially vast new oil and gas resources and the accretion of further geopolitical influence, akin to the game-changing shale industry for the U.S. Russia’s current development of the Arctic region is centred around the Yamal Peninsula and led principally Novatek but further developments are in the offing from Gazprom and Gazprom Neft, even in the face of current and future U.S. sanctions.

Novatek’s main Arctic project, the Yamal LNG (unofficially referred to as ‘Arctic 1’) last week announced that it produced 9.0 million tons of LNG and 0.6 million tons of stable gas condensate in the first half of this year, with all three LNG trains running above the 5.5 million tons per annum (mtpa) nameplate capacity over that period. This resulted in 126 LNG tanker shipments being dispatched in the six month period via trans-shipment from the ice-class LNG carriers to conventional vessels in Norway and delivered onto the global markets, mostly to Russia’s key target markets in Asia. Overall, the Yamal LNG project consists of a 17.4 mtpa natural gas liquefaction plant comprised of three LNG trains of 5.5 mtpa each and one LNG train of 900 thousand tons per annum, utilising the hydrocarbon resources of the South-Tambeyskoye field in the Russian Arctic.

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