From: Feroze Mithiborwala <feroze.moses777@gmail.com>
Date: Wed, Mar 31, 2010 at 11:41 PM
Subject: Oil Geopolitics Shifts as China Taps Saudi Crude
Saudi Arabia's oil exports to the US last year sank below 1m barrels a day for the first time in two decades just as China's purchases climbed above that level, highlighting a shift in the geopolitics of oil from west to east.
The drop in US demand for oil from the kingdom, traditionally one of its primary sources, is the result of lower energy consumption overall but also greater reliance on imports from Canada and Africa.
China's buoyant economic growth, meanwhile, is prompting Beijing to buy more Saudi oil, a trend Riyadh has encouraged through refinery joint ventures.
"China offers demand security, something that for a long time the oil-producing countries, including Saudi Arabia, have called for," said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh.
"As global demand has been picking up in the east . . . Saudi Arabia has been looking east."
President Barack Obama wants to reduce US dependence on foreign oil and encourage renewable fuels. Meanwhile, Saudi Arabia wants stable markets for its oil.
This divergence will be in the background when Steven Chu, US energy secretary, visits Riyadh today. His trip reflects Washington's priorities, with the programme focusing on technology research rather than traditional oil politics.
While the US remains the world's largest single consumer of oil, total demand fell between 2008 and last year. Most analysts expect that greater efficiency and the damage caused by the recent spike in prices will impose limits on any rebound.
The US has also taken a strategic decision to diversify its sources of oil and reduce its reliance on countries in the Middle East.
Canada has duly overtaken Saudi Arabia as the top supplier for the US following large investment in its tar sands region.
Meanwhile, the US has bought a higher share of its oil supplies from Angola, Nigeria and Brazil.
Imports of crude oil for the US peaked above 10m barrels a day in 2005. But the total has fallen by 9 per cent in the past two years under the impact of recession. China's oil imports, by contrast, rose by 14 per cent last year alone.
The drop in Washington's reliance on Saudi oil is unlikely to alter dramatically their relationship. The US has encouraged Saudi Arabia to sell more crude to China, hoping that this will make Beijing less reliant on supplies from Iran.
If the balance of China's oil dependence tilts away from Iran, the US calculates that Beijing will be more willing to support tighter sanctions on Tehran.
But analysts say oil is a fungible commodity and any supply shock in the Middle East would still affect the USeconomy in spite of lower imports from Saudi Arabia.
On the other hand, China's rising demand for Saudi oil, on top of already large purchases of Iranian crude, could further boost Beijing's interest in the Middle East.
The US imported 998,000 b/d of Saudi crude in the first 11 months of 2009, the lowest since 1988, according to official data. Analysts anticipate December figures will confirm the drop.
The fall came as Saudi oil exports to China hit a record in December above the psychologically significant 1mb/d level.
For years, the state oil company Saudi Aramco "was under strict orders to be first in sales" to the US each month.
This strategy was "political and not commercial in nature", according to Amy Myers Jaffe and Jareer Elass atRice University in Houston. That changed in 2003, they said, after the Saudi ruling elite relaxed the strategy.
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Feroze Mithiborwala
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Palash Biswas
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