China should play off oil producers against each other in crisis
- As Russia, Saudi Arabia and the United States seek help to prop up their energy industries, Beijing would be foolish not to expect anything in return
Oil is now a buyer’s market and China is the world’s largest purchaser of crude. As prices have plunged to multi-decade lows, the country may be reaping geopolitical advantages, if not economic benefits. China relies on imports for more than 70 per cent of domestic consumption.
However, some commentators have claimed the lower prices pose a challenge for state-owned oil firms for their production and investment. They also argue that low prices don’t automatically mean cheaper fuel for consumers because of the domestic control of prices. They are not looking at the bigger picture.
Russia, Saudi Arabia and the United States are looking to China to help prop up their oil industries threatened by the recent price collapse. American oil producers want their government to pressure Beijing into buying more of their oil under the so-called phase one of the trade deal between the two countries. Meanwhile, China has been buying more oil from Russia and Saudi Arabia.
Futures contracts of West Texas Intermediate, one of the main gauges of oil prices, at one point plunged into negative territory before recovering. Prices have fallen about 70 per cent year on year.
Russia, oil producers’ cartel Opec and its allies have just agreed to a truce in their Ill-advised price war, which triggered the market collapse. But the worldwide economic downturn due to the Covid-19 pandemic is the underlying cause.