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China has set a record for importing volumes of Russian crude oil for just the first half of this year, notwithstanding sanctions on oil from Russia which continues to shape global oil markets - thus allowing China the opportunity to boost exports.

According to data by the Financial Times based on customs, in the first half of 2023, China imported 11.4 million barrels per day (bpd) of crude oil, which is up 11.7% year on year and 15.3% as opposed to pre-Covid levels.

Mukesh Sahdev, head of oil trading at the research group Rystad Energy, said: “The short answer is crude stocks have been building in China,” adding, “They’re importing for the future . . . and in advance of a potential stimulus. People are all talking about a second-half story.”

China imported 2.57 million bpd of Russian crude in June which broke the May record per official data on Thursday.

In the first half of 2023, 2.13 million bpd of oil from Russia was imported by China - becoming the top crude supplier to China so far this year - ahead of 1.88 million bpd from Saudi Arabia.

Analysts offered different reasonings, with geopolitical risk as one possible explanation.

Sahdev claims that “China could be preparing for some geopolitical situation,” adding “a Russian tailspin or a crisis in Taiwan" as the draconian Western sanctions on Russia prove to backfire.

Read more: Oil sanctions are a fail for the West, a win for Russia: The Economist

Head of China energy research at the Oxford Institute of Energy Studies, Michal Meidan, stated his certainty regarding "a perception in China that the external environment is deteriorating and they’re preparing for sanctions, but that’s been the subtext for years". 

Pressure on Asian rivals

Chinese customs data implies that since the war in Ukraine broke out, Russian imports have been cheaper than those from other OPEC+ countries. For example, in comparison with the unit price of Saudi Arabian crude, Russian oil showed a discount of $9 a barrel at the end of 2022 and $11 a barrel in June.

Just last month, members of the OPEC+ group agreed to cut oil outputs to 40.463 million barrels per day throughout 2024, the group said in a statement after a meeting in Vienna. Saudi Arabia announced a one million BDP production cut, while Saudi Energy Minister Prince Abdulaziz bin Salman noted that the slash in output would be for July but "can be extended".

But analysts stressed that the Russian discount was smaller than those on Iranian or Venezuelan products, considering the growth impact of the opaque de-dollarized trade in Russian crude.

“I don’t think China’s going to go all in on Russia,” said Meidan, noting: “This is a short-term move away from Saudi feedstocks. The Chinese are pretty keen to keep a balance between their suppliers.”

Meidan called this "price-driven by market realities". 

“They have these plans and a state machinery, but then they optimize around this in a way that is very sophisticated and capitalistic. One thing that isn’t appreciated in the West is how fierce competition is between the [Chinese] majors.”

Market data provider Kpler's analysts claim a strong incentive for Chinese refiners to maximize production, also considering the margin advantage of as much as $3 a barrel over other rivals in the Asian market.

According to Kpler's expectations, China’s advantage from cheap Russian oil will give it leverage into the market, thus creating pressure on Korean and Japanese producers.