China may resume purchases of U.S. crude oil and products after the Phase 1 deal Washington and Beijing signed yesterday, Bloomberg reports.
The terms of the deal include the addition of U.S. energy exports worth some $18.5 billion this year and another $33.9 billion in 2021. The additional exports span the whole spectrum of fossil fuels and their derivatives, from crude oil and liquefied natural gas, to various fuels as well as coke and coal.
Besides the direct beneficial effect on U.S. energy exports, the deal is also positive for several LNG projects that have stalled because of the freeze in bilateral relations. LNG projects are costly endeavors and their operators need long-term purchase commitments to get the debt funding to complete them. According to Bloomberg, the Phase 1 deal will take care of that.
China gradually stopped buying U.S. oil as the trade war the Trump administration began two years ago progressed. The Phase 1 deal should change that.
Some are warning against too much optimism, however. Reuters reported some analysts believe China may have trouble keeping its end of the deal. The details of how these commitments for higher exports are to be fulfilled have yet to be made public.
The Phase 1 trade deal is generally scarce in detail. It involves an agreement on the part of the United States to reduce 15-percent tariffs on $120 billion worth of Chinese goods by half. China, in turn, will carry out structural reforms and buy an additional $200 billion worth of American goods and services over the next two years. The deal, however, will leave in place U.S. tariffs on $360 billion worth of Chinese goods.
China’s oil imports are at a record high and so are refinery processing rates. This has created a glut of Chinese oil products regionally, so additional imports of fuels from the United States might only add to the glut.
By Irina Slav for Oilprice.com
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