Russell: China imports most energy but has the best position on Iran

China is the largest energy importer in the world and would appear to be vulnerable to the rise in crude oil and gas prices caused by the conflict between Israel, the United States and Iran.

China's huge crude oil stockpile is a buffer against price spikes. This means that any energy-driven inflation in other parts of the world won't hit China.

By increasing the exports of refined goods, China's refiners may also be able to reap a windfall profit in 'the?event?of a prolonged disruption of crude oil supplies from the Middle East.

China can refine crude oil and export products like diesel and gasoline in order to profit from the inevitable rise in fuel prices.

China also has another advantage, as it is the largest buyer of Russian crude that is sanctioned but at a discount. It's also the final destination of any Iranian crude on the seas which managed to leave the Strait of Hormuz prior to the weekend attacks of Israel and the United States.

China does not reveal how much crude oil it adds to its commercial and strategic inventory. However, an estimate can be obtained by adding up crude imports with domestic production before subtracting refinery output.

According to this, China's excess crude in 2025 was 1,13 million barrels a day (bpd), with particularly strong builds towards the end of the calendar year, as imports increased sharply and reached a record of 13,18 million bpd.

Although official data for imports and refinery production in the first two month of this year have yet to be released it is likely that the large builds in inventory continued.

LSEG Oil Research estimates that China's crude oil imports for the first two month were 12.47 million bpd, with refiners taking advantage of Russian and Iranian barrels at discounted prices.

If the domestic production remained steady at around 4.2 mbpd in December and refinery output held steady at around 14.7 mbpd for January-February, then the surplus could be as high as 2 mbpd.

China has two options when it comes to this level of crude surplus.

Brent crude futures ended Monday at an all-time high of $76.77 a barrel, a 7.3% increase.

By May or June, it would not surprise me to see China's exports fall to around 10.5 million bpd.

Second, China can maintain a robust refinery output, ensuring the domestic supply, and even allowing increased fuel exports in the event that Asian prices rise due to a tighter Middle East crude supply.

Beijing controls the retail price of fuel in China, so Chinese consumers and business will not be affected by any energy-driven inflation in the United States or Europe.

COAL and LNG

China's advantage goes beyond crude oil and includes coal as well as liquefied gas (LNG).

China, the world's largest LNG importer, has demonstrated in previous episodes of high prices that it will only accept long-term cargoes?which are usually on fixed or oil linked prices.

China could also resell LNG to its utilities, allowing them to increase profits.

China's domestic natural gas production can be increased?for a brief period, and it can also?increase imports via pipelines to central Asia and Russia. This will ensure that any price spike on the global market does not reach its own domestic market.

Platts data shows that the benchmark Asian LNG price, which is widely used to measure Asian LNG, jumped 39% Monday morning. The S&P Global Energy Japan Korea-Marker was $15.068 per mBtu, Platts' data revealed.

China is the largest coal importer and producer in the world. It has the flexibility to increase its domestic production and reduce imports, if seaborne prices rise due to increased demand for LNG as an alternative power source.

China imports thermal coal primarily from Indonesia. It is of lower energy content, so it's not sought after by European buyers and utilities in Japan and South Korea.

China, like crude oil and LNG, is protected from any increase in coal prices.

GlobalCOAL, which assesses Australia's benchmark Newcastle Coal at $121.13 per metric ton, was up 4.7% on Monday from its previous close.

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These are the views of the columnist, who is also an author. Clarence Fernandez edited this article

(source: Reuters)