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🇨🇳 Insider time: what is fraught with Aramco's deal with China
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🛢️ OPEC+ has announced a 1 million b/d reduction in oil production by the end of this year, which is expected to help maintain market stability. Against this background, the intensification of business relations between Saudi Arabia and China is especially interesting.
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The Fed and the ECB have previously considered long-term inflation as a strong negative due to the increase in China's energy consumption after the economy opens, and if the Cartel manages to raise the price above $90, this problem will become a reality.
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Saudi Arabia is ramping up supplies of crude oil and diesel to Europe but is still banking on China as the most important source of future demand. Saudi Aramco (TADAWUL:2222) is going to supply more oil to Asia under long-term contracts. The goal is to reduce dependence on the United States.
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The company announced new deals with Chinese energy companies in the amount of 690 thousand barrels per day. Aramco has acquired a 10% stake in Rongsheng Petrochemical Co Ltd (SZ:002493) and is also willing to supply Zhejiang Petrochemical Corp (SZ:002648) at 480k b/d over the next 20 years, and Aramco and HAPCO have decided to build a petrochemical complex in northeast China, to which Aramco will supply 210 thousand of barrels of oil per day. The new deals mean a significant increase in oil exports to China, although this refinery will not be commissioned until 2026.
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So far, several conclusions can be drawn.
• Aramco does not see a reliable customer in Europe in the medium to long term.
• Traders should expect higher industrial demand for oil in China in the coming months.
• Saudi Arabia, and therefore OPEC, will act in its own interests, and its interests are now even more dependent on China.
• From a geopolitical standpoint, these deals will have important implications for the US, leaving Biden with little room to effectively respond given the near-empty SPRs.
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Let's see what happens.
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Profits to y’all!