China is significantly increasing imports of crude oil from Angola, its second largest supplier of this raw material, rather than from its main supplier, Saudi Arabia.

Following recent changes that have lowered the price of African oil, which is pegged to the price of Brent, in July, China increased its oil purchases from African countries, to 6.51 million tons (47.5 million barrels), according to estimates released last week by Thomson Reuters.

Reuters said the “bulk of the increase” was from Angola, the main African oil supplier to China, which in July exported 3.4 million tons to the world’s second largest market.

For Angola, the Thomson Reuters analysts said, “the big boost in exports to China in July will be a welcome change, as in the first half of 2015 it had lost second place to Russia,” in the list of main Chinese suppliers, behind Saudi Arabia.

According to Chinese Customs, imports of Angolan oil fell nearly 9 percent in the first half to 19 million tons, while Russian oil rose nearly 27 percent and Saudi oil over 9 percent.

The change in price has led to the share of Russian and Saudi to shrink, as it is not pegged to Brent prices, as is the case with Angola, which has been falling in relation to other market benchmarks.

Last year, exports of Angolan oil to China reached their highest level ever – 806 million barrels – while Saudi oil fell about 9 percent to 989 million barrels.

Long-term supply contracts to China, which were established since 2002, have been considered a financial “cushion” for Angola in the current climate of falling prices, due to how the price is set, which is favourable to Angola in turbulent times in the market.

According to the Africa Intelligence Monitor, citing senior Angolan officials, the sharp drop in the price of oil is worrying the authorities, but they also point to mitigating circumstances such as long-term contracts that allow some leeway to manage the situation.

China is currently the main Angolan trading partner and last year trade between the two countries reached US$38 billion.

Figures compiled recently by Reuters showed that China’s funding to Angola, including the latest loans, already amounts to US$20 billion, support that has become increasingly necessary due to the sharp decline in oil revenues over the last year.

A five-day visit by the Angolan President to China in June, according to the Economist Intelligence Unit (EIU) underlines the “frankness” of the Angolan president for making a direct request, which the EIU interpreted as a sign of the “gravity of the economic situation” in the country.

“Although this visit included discussions on private sector investments, the focus was on securing new loans, showing that Angola may have further need of China than it cares to admit,” said the latest report by the EIU on Angola.

In recent years, Chinese state oil companies have been acquiring major stakes in the Angolan sea.

Also with Chinese investment, from the China International Fund (part-owned by China Sonangol), is starting construction of the new Soyo refinery (north), which should be operational in 2017, with a processing capacity of 110,000 barrels of oil.

By Pita Ochai


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