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China Provides Loans in Exchange for Oil

China signs long-term agreement to secure oil supplies from Russia and Brazil.

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Two "loan for oil" agreements that China signed with Russia and Brazil in the past week again put China's appetite for oil in the limelight. On Tuesday, China signed a $25 billion agreement to provide loans to Russian oil company Rosneft and pipeline operator Transneft, in exchange for 300,000 barrels of daily oil supply for the next 20 years. A similar deal was clinched again on Thursday, when China agreed to provide an estimated $10 billion in bank loans to Brazilian oil producer  Petrobras (PBR). In return, Brazil will supply between 100,000 and 160,000 barrels of oil on a daily basis to state-owned China National Petroleum Corp. (parent company of  PetroChina (PTR)) and  Sinopec (SNP).

The recent flurry of deals coming out of China seems to indicate a shift in the government's allocation strategy of its vast reserve. While U.S. Treasuries will remain a focus for obvious strategic and investment reasons, we believe China also wants to diversify its exposure and is keen to secure long-term supplies of oil and basic materials while the commodity prices are low. We won't be surprised to see more such transactions in the future.

Dan Su does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.