China is not afraid of US oil exports (for now). here's why

by



[ad_1]

"It's safer to charge LNG," said Ryan Fitzmaurice, energy strategist at Rabobank. "China consumes a lot of oil, the appetite is great when people join the middle class."

The burgeoning LNG caught in the trade war

LNG has been included in the list of products currently subject to tariffs of 25%, up from the 10% tax imposed by China in September.

If it were not for the trade war, China and the United States would seem to agree perfectly on LNG, an over-cooled natural gas that can be transported by ship. China is the fastest growing LNG market in the world, while Beijing is trying to improve its pollution problem by moving away from coal.

Thanks to the shale boom, the United States has more natural gas than they know what to do. Today, the United States is the fastest growing LNG exporter in the world.

Why the trade war between the United States and China will not last

However, the United States has only delivered four LNG shipments to China since these tariffs came into effect, according to consulting firm Wood Mackenzie. This compares with 35 shipments between September and April. US LNG exports have also risen sharply over the past nine months – as have Chinese LNG imports.

"These retaliatory tariffs are reducing US investment prospects in growth in LNG, affecting US workers and benefiting America's foreign competitors," said Monday the American Petroleum Institute's group of lobbying representing the energy sector.

China's decision to crack down on US LNG reflects the fact that it can supply elsewhere, especially at a time like when stocks are plentiful. Australia and Qatar are larger LNG producers than the United States, but America is expected to surpass them in 2022.

"The LNG market has been transformed into a buyer's market over the past year," wrote JBC Energy in a note to customers on Tuesday.

Record oil imports by China

The oil market, on the other hand, has tightened due to reduced OPEC supply, geopolitical issues and China's strong demand.

China's already massive oil imports hit a record 10.3 million barrels of oil a day on average since November, according to RBC Capital Markets.

"China is saving the truck and importing oil at breakneck speed," said Michael Tran, director of RBC's global energy strategy.

Oil prices rise after Saudi Arabia reports a drone attack on pumping stations
Part of China's epic petroleum demand would normally be met by Venezuela and Iran. But US sanctions on both OPEC countries, as well as the worsening of the crisis in Venezuela, have cast doubt on China's ability to obtain these barrels.

Given these concerns, China stores about 350,000 barrels of oil a day, according to RBC.

"They are working on a rainy fund," said Tran.

Despite the trade war, the United States is still shipping huge quantities of oil to China, albeit at a slower pace these days.

US oil exports totaled 145,000 barrels a day in February, according to the latest statistics from the US Energy Information Administration. This is down from the recent peak of 510,000 barrels per day in June 2018.

Will the oil be targeted next?

The reduction in China's purchases probably reflects the uncertainties caused by the trade war.

"Chinese refiners have been reluctant to take US crude because of the potential price hike," said Rabobank's Fitzmaurice.

The imposition of tariffs on US oil may not have been very effective because crude oil is a global market. Shipments could simply go elsewhere.

"This has no benefit in terms of the progressive price increases," said Alan Gelder, vice president of refining, chemicals and oil markets at Wood Mackenzie.

However, China may have no choice but to target oil if the commercial battle continues to intensify. The Trump administration plans to apply tariffs on the remaining $ 300 billion worth of goods exported by China to the United States. This scenario of total trade war would require a response from China.

"China is starting to run out of tariffs," said Tran of RBC. "Oil is an obvious next step."

[ad_2]

Source link