The United States has quickly become one of the top crude producers in the world thanks to the shale boom fueled by the shale oil and gas powerhouse that is West Texas’ Permian Basin. In fact, the U.S. is on track to overtake Saudi Arabia as the world’s leading exporter of oil, natural gas liquids and petroleum products by the end of the year in a development very, very few could have predicted. At the same time that the U.S. has risen to the top of the global oil production game to become the fastest-growing oil producer in the world, China has also broken its own records to become the fastest-growing oil consumer in the world.
This dynamic adds yet another layer of complication to the trade dispute still unfolding between the U.S. and China. As the trade war between the United States and China escalates swiftly and dramatically, China has been far from reserved about countering aggressive U.S. tariffs with tariffs of their own. China has levied tariffs on a wide variety of U.S. products, from liquefied natural gas to cotton, soybeans, machinery, grains and aircraft parts. Despite the growing tension, however, so far China has yet to impose any tariffs on U.S. oil.
Yes, China has decreased the amount of U.S. oil that they import, but so far, they have held back on placing any outright tariffs on U.S. crude. This move (or lack thereof) comes as part of what is likely a very intentional strategy not to limit China’s sources for the crude oil it is so thirsty for. Especially as the United States buckles down on sanctions against Iran and Venezuela--dovetailed with the ever-worsening economic crisis in the latter--the global crude supply could soon be tightening as tensions in the Middle East grow closer to a boiling point and the Organization of the Petroleum Exporting Countries (OPEC) shies away from ramping up production levels in response to tightened sanctions on some of the world’s biggest heavy crude producers.
"It's safer to tariff LNG," Rabobank energy strategist Ryan Fitzmaurice told CNN. He went on to say, "China is a huge consumer of oil. There's a big appetite as people move into the middle class."
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China has consistently broken its own records as it consumes more and more oil each day and each year, this year reaching a jaw-dropping, gas-guzzling average of a whopping 10.3 million barrels of oil per day since November. As China’s demand continues to skyrocket and the global crude supply becomes more and more vulnerable thanks to sanctions and geopolitical factors, China has been stockpiling massive amounts of oil in storage. New reporting indicates, however, that China’s rainy-day fund of stockpiled crude very well could be “quietly dwindling”, making it ever more essential the Beijing keeps its options open when it comes to their relationships with major crude-producing nations such as the United States.
CNN reports that “reduction in purchases by China likely reflects uncertainty caused by the trade war”. Rabobank energy strategist Ryan Fitzmaurice was further quoted by CNN to say that "Chinese refiners have been hesitant to take US crude given the overhang of potential tariffs” as Beijing weans its consumption of U.S. crude despite their hesitance to take the further step of imposing tariffs.
In the meantime, as China backs away from U.S. oil, the United States has not wasted a moment in finding new buyers for their crude. According to reporting by Bloomberg, the United States “shipped 470.2 million barrels to 38 countries from October through March, compared with 359.3 million to 31 nations in the previous six months, according to Census Bureau data [...] The volumes increased even as shipments to China sank nearly 80%.”
By Haley Zaremba for Oilprice.com
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