China is easy on US oil exports (for now). Here's why

admin May 14, 2019

11 3 minutes read

China is easy on US oil exports (for now). Here's why

"It is safer to thank LNG," says Ryan Fitzmaurice, energy strategist at Rabobank. "China is a great consumer of oil. There is a lot of appetite when people move into the middle class."

Booming LNG caught in commercial war

LNG was included in the list of products that are now facing 25% tariffs, up from a 10% fee imposed by China in September.

If not for the commercial war, China and the United States will act as a perfect match on LNG, which is super-cooled natural gas that can be transported by ship. China is the world's fastest growing LNG market, as Beijing is trying to improve the pollution problem by shifting away from coal.

Thanks to the slate boom, the United States has more natural gas than it knows what to do with. Today, the United States is the world's fastest growing exporter of LNG.

The United States has delivered only four LNG cargoes to China since these tariffs came into force, according to consulting firm Wood Mackenzie. It compares with 35 loads during September to April. The US LNG exports have otherwise increased sharply in the last nine months, and there are also Chinese LNG imports.

These retaliatory tariffs mitigate the prospects of the growing US LNG investment, injuring US workers and enjoying US foreign competitors, "the US Petroleum Institute, a lobbying group representing the energy industry, said in a statement on Monday.

China's decision on Shutting down on the US LNG reflects that it can source it from elsewhere, especially at a time when supplies are abundant, Australia and Qatar are larger LNG producers than the United States, although America is expected to surpass each of them in 2022.

"The LNG market was transformed into a buyer's market over the past year," JBC Energy wrote in a note to customers on Tuesday.

Recording oil imports of China

However, the oil market has tightened due to cutbacks in OPEC, geopolitical problems and strong demand from China

China's already huge oil imports have climbed to a record 10.3 million f that oil a day on average since November, according to RBC Capital Markets.

"China has backed up the truck and imported oil at breakneck speeds," said Michael Tran, RBC's Global Energy Strategy Director.

Oil price jumps after Saudi Arabia reports drone attacks on pumping stations

Some of China's epic oil demand will normally be met by Venezuela and Iran. But US sanctions on both OPEC countries, along with the deeper crisis in Venezuela, have doubted China's ability to acquire these barrels.

According to these concerns, China has made about 350,000 barrels of oil per day, according to RBC.

"They work on a rainy season fund," Tran said.

Despite the trade war, the United States still sends large volumes of oil to China, albeit at a lower rate these days.

US oil exports amounted to 145,000 barrels per day in February, according to the latest statistics from the US Energy Information Administration. It is down from the last peak of 510,000 barrels a day in June 2018.

Will the oil be targeted next?

The reduction of purchases from China is probably due to uncertainty caused by the commercial war.

"Chinese refineries have been reluctant to take US commodities given the overhang of potential tariffs," says Rabobank's Fitzmaurice.

The introduction of US oil tariffs may not have been very effective because crude oil is a global market. elsewhere.

"It has little advantage in a tariff-to-tax escalation," said Alan Gelder, vice president of refining, chemicals and oil markets at Wood Mackenzie.

But China may have little choice but to target oil If the trade struggle continues to escalate, Trump administration is considering setting tariffs on the remaining $ 300 billion worth of goods China exports to the United States. That all-out trade war scenario would require a response from China.

"China runs out of stuff thank you, "said RBC's Tran." Oil is an obvious next step. "

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