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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Chinese Refiners Aren’t Buying U.S. Crude

Chinese refiners are not buying more U.S. oil despite the three-month truce agreed by Presidents Trump and Xi last month, Reuters reports, citing cargo loading plans of Chinese downstream operators.

According the Reuters, Chinese demand for U.S. crude has been dampened by political uncertainty around the trade war and, more directly, by relatively high costs of transportation. This means that despite the truce and future positive developments in bilateral talks on trade, U.S. oil will have yet to become a major element of China’s imported crude oil mix.

One Chinese analyst told Reuters that price was the top consideration of buyers and the price of U.S. oil simply wasn’t competitive.

“Chinese companies have little incentive to buy U.S. crude due to the wide availability of crude supplies today from Iran and Russia,” Seng Yick Tee from consultancy SIA Energy said. Yet trade tensions are not helping, either. With the constant threat of more tariffs, refiners are reluctant to change their buying habits.

“Even though the trade tension between China and the U.S. had been defused recently, the executives from the national oil companies hesitate to procure U.S. crude unless they are told to do so.”

U.S. crude oil exports hit a high of 23.95 million barrels in October 2017, data from the Energy Information Administration shows, but have since then declined, reaching 2.17 million barrels in September this year before Chinese refiners completely stopped buying U.S. crude in October.

Yet China’s total oil imports in October, on the other hand, hit 40.80 million tons (9.61 million bpd), of which teapots imported 8.22 million tons. This was the highest monthly oil import amount on record, according to customs data from Beijing. The increase came despite depressed refining margins that could have motivated lower appetite for crude but apparently did not. The independent refiners drove the increase as they sought to fulfill their import quotas until year-end.

By Irina Slav for Oilprice.com

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  • Brandon on December 21 2018 said:
    It's all about quality: US are exporting the low quality shale oil their own refineries refuse to process. Why should China buy that stuff? Shale oil is something different than regular refinery-grade oil. WTI should be split in two different indexes. Real market oil price is much higher than that.
  • Mamdouh G Salameh on December 21 2018 said:
    There is a growing feeling that the truce in the trade war between the United States and China will not result in an end to the trade war between them. The root of the problems has less to do with China’s trade surplus with the United States and the alleged manipulations of its currency to get trade advantages at the expense of the US and far more to do with China’s meteoric rise and the growing importance of the petro-yuan in the global oil trade.

    It is a truth universally acknowledged that a great power will never voluntarily surrender pride of place to a challenger. The United States is the pre-eminent great power. China is now its challenger.

    Almost nine months since its launch, the Chinese crude oil futures contract (the petro-yuan) has already taken a 6% market share from the world’s top benchmarks and most active contracts, Brent and WTI. This achievement is the more impressive given the fact that when Brent futures contract started trading in 1988, it only took a 3.1% share from the then-dominant WTI contract. It is probable that the Chinese yuan will emerge as the world’s top reserve currency within the next decade with the petro-yuan dominating global oil trade.

    Against such background, Chinese refiners are not going to commit themselves to buy more US crude oil given the political uncertainty around the trade war and the fact that they can replace US crude altogether with cheaper crude from Iran and Russia.

    To undermine US sanctions against it, Iran has been offering discounted crude to both China and India which account jointly for 68% of its oil exports. It has also offered long payment terms to India and also agreed on barter trade with it.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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