Can hard-hit US oil resume exports to China?
Chinese refiners have stopped importing US crude oil since early 2019 amid an increasingly bitter trade dispute between Washington and Beijing.
There had been expectations of a resumption in the trade at the start of the year following the phase one trade deal between the world’s two largest economies. However, the coronavirus pandemic has ratcheted tensions higher just when we thought they were starting to ease.
The coronavirus has made the mathematics of US shale oil growth more challenging. The decline in US shale oil rigs has been rapid and has clouded the outlook for the sector that was already coming under pressure before the pandemic hit.
While there are reports of rising US crude oil exports to Asia, this is because of deeper discounts offered for US crude oil relative to other competing grades in Asia.
Before the pandemic, China was the second-largest market for American oil exports, after Canada.
However, as the Chinese market shrunk, American companies were able to divert oil cargoes to other countries, and petroleum exports continued to expand.
Now most US exports to Asia that would previously have gone to China are now destined for India and South Korea instead.
No clear information has yet emerged about the resumption of US crude oil exports to China, notwithstanding reports about the import of 2 million barrels of the WTI-Midland grade oil for August-September arrival to be used in the petrochemical sector.
The focus is now not only on US crude oil exports to China, but also US natural gas exports. China has a long term strategic aim to meet 15 percent of its total energy demand from gas by 2030, up from the current 10 percent. This represents a huge opportunity US liquefied natural gas exports.
The pandemic has upended expectations of how the US-China energy relationship may develop at a time of huge volatility — both in terms of political rhetoric and the physical price of oil and gas.
With such prices at record lows and inventories at record highs, we should expect to see US oil and gas exports sold at even bigger discounts that could attract interest from more consuming nations. But despite such interest, the outlook for the industry appears bleak.
• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq