In a sign of shifting fortunes in the oil business, Trade Arabia reports that Russia has surpassed Saudi Arabia as the top oil exporter to China.

Russia beat out Saudi Arabia as China's largest oil supplier in May, customs data showed on Tuesday, marking the third month in a row the world's biggest oil producer has topped the world's biggest oil exporter in feeding China's market.

Both Russia and Saudi Arabia view the Asian oil market as a top priority, but China’s small, independent refineries (aka, teapots) prefer the low-Sulphur oil from Russia due to the smaller cargo size and geographical proximity to the refineries.  This is in contrast to high Sulphur grades from Saudi Arabia and Iraq which is less suitable for the teapots because of larger shipment sizes and because they are typically sold under long-term contracts.  China is encouraging the teapot – Russia operation by speeding up approvals for crude import licenses and quotas for independent refiners.

Meanwhile, Saudi Aramco reacted Thursday by announcing that it will cut all official oil prices to its Asian and US clients.

State-owned Saudi Arabian Oil Co. lowered its official selling price for Arab Light crude to Asia by 40 cents to a premium of 20 cents a barrel above a regional benchmark.  Saudi Arabia’s move to lower the official selling price (OSP) will intensify competition with rivals such as Russia and the United Arab Emirates, who produce similar oil grades and are also looking for a bigger share of the market in Asia, the world’s top oil consuming region.

Whether reductions of selling price for oil will further exacerbate an already lowered revenue stream for the Kingdom is arguable as the Saudis are aiming for increasing their market share in Asia directly competing against the Russians.

The kingdom, however, has responded by pumping and shipping more following an oilfield expansion, a move that traders say could pressure rival producers – such as the United Arab Emirates (U.A.E.) and Russia – and knock down prices in Asia.

In other words, Saudi Arabia is not taking the recent Russian surge in Asia lying down.  Asia is the Kingdom’s traditional stronghold, and the challenge to its dominance will not go unanswered.

John Smith is the pen name of a former intelligence officer