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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Is U.S. Oil Returning To China?

The latest signals from the U.S.-China trade dispute appear to be that progress has been made in the talks and the two biggest economies in the world may avert a full-scale trade war.

The latest signals from ship-tracking data suggest that U.S. crude oil appears to be heading to China after many months of China abstaining from buying American oil despite the fact that it’s not on Beijing’s tariff list.

he return of the U.S. crude oil exports to China will depend on two key factors—how the trade dispute plays out in coming months and how wide the Brent Crude premium over WTI Crude will be. The wider the spread, the more economic U.S. oil is for Asian refiners compared to Brent-linked grades.

An independent Chinese refiner has recently imported U.S.-origin crude oil pulled from storage in South Korea, S&P Global Platts vessel tracking data showed earlier this week.

China could soon import crude oil directly shipped from the U.S., CNBC reports, citing ClipperData’s tanker-tracking data.

Although tanker-tracking data currently shows that a tanker is en route to a Chinese port, the final destination may yet change as the estimated time of arrival is the middle of April. In the past couple of months, other crude oil tankers heading to Asia were first thought to be en route to China but they later changed their final destination to other countries in the region.  

According to ClipperData, a very large crude carrier (VLCC), Hong Kong Spirit, has recently loaded nearly 2 million barrels of U.S. oil at Moda Midstream’s Ingleside terminal near Corpus Christi, Texas. According to MarineTraffic, the currently declared destination of the vessel is Yantai, China, with an estimated time of arrival on April 18. Related: Has Trump Overplayed His Hand With Saudi Arabia?

Still, the final destination could change, Matt Smith, director of commodity research at ClipperData, told CNBC, but noted that by mid-April “trade war concerns may have dissipated.”

In the first half of 2018, China was one of the biggest buyers of U.S. crude oil, even outpacing Canada in some months.

But Chinese imports of American oil abruptly stopped in the summer of 2018, when the trade war between the United States and China escalated with tit-for-tat tariffs on many products.

Although crude oil is not on China’s tariff list, Chinese buyers have been staying away from U.S. crude oil purchases since the summer of last year.

According to the latest available EIA data, the United States didn’t export any crude oil to China in August, September, October, and November, compared to 384,000 bpd in July and a record-high 510,000 bpd in June. Related: Saudi Aramco CEO Rebukes Peak Oil Demand ‘Hype’

After the United States and China called a trade-war truce in early December and pledged to immediately begin trade negotiations in view of possible deal within 90 days, Chinese refiners were said to have been looking for opportunities to buy U.S. crude oil by March 1, when the negotiating period expires, but they reportedly needed further assurances that no cargoes would be left stranded with possible tariffs on crude oil on them.

In mid-January, three U.S. crude oil cargoes were headed to China in what could have been the first Chinese purchase of American crude since the trade war escalated, but the tankers have been diverted to other destinations.

Recent signs of de-escalation of the trade war could prompt Chinese refiners to resume buying U.S. oil, but they will likely wait to see what a possible trade deal would be like.

In one of the clearest signals that there could be a deal, U.S. President Donald Trump tweeted earlier this week “China Trade Deal (and more) in advanced stages” and that the United States would be delaying new tariffs on Chinese imports.

The other key factor for the return of U.S. crude oil on the Chinese market is the Brent/WTI spread. According to Platts and analysts it has briefed, the recent import by Chinese independent refiner Hongrun Petrochemical of U.S. Eagle Ford crude from South Korean storage was likely the result of the wide Brent Crude premium over WTI Crude, which has made the Eagle Ford grade attractive for the refinery.

The price spreads could encourage occasional Chinese imports of U.S. crude grades. However, the two countries will have to settle the trade dispute with a deal in coming months in order for China to regain its top-three spot among American oil buyers.

By Tsvetana Paraskova for Oilprice.com

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