China

Zerohedge 3 Oct 2018


It has been roughly two months since China threatened to impose a 25% tariff on US energy imports (it eventually went back on those threats), and less than two weeks since the latest round of tariffs has been implemented. But even as China has shied away from its threats to punish the US energy industry, Reuters data are showing that imports of US oil to China have ground to a halt.

Confirming the data, Xie Chunlin, the president of China Merchants Energy Shipping Co, said on Wednesday that crude oil shipments to China have “totally stopped” as the trade war has taken its toll, reversing growth in what had been a rapidly expanding market for US shale producers.

“We are one of the major carriers for crude oil from the U.S. to China. Before (the trade war) we had a nice business, but now it’s totally stopped,” Chunlin said on the sidelines of the Global Maritime Forum’s Annual Summit in Hong Kong.

“It’s unfortunately happened, the trade war between the U.S. and China. Surely for the shipping business, it’s not good,” the CMES president said.

He also said the trade dispute was forcing China to seek soybeans from suppliers other than the United States, adding that China now bought most its soybeans from South America.

In place of US imports, China, which is the world’s largest importer of crude oil, is becoming increasingly reliant on the Middle East and Russia while it has also shifted to using Iranian tankers to bypass impending US sanctions on Iranian crude while also becoming more reliant on Iranian crude in general. But while it’s grabbing the most headlines right now, the trade fight is hardly the only source of contention between US oil producers and China, as China’s yuan-denominated crude futures contracts are beginning to show their teeth.

To be sure, China was never heavily reliant on the US as a source of crude oil.

 

During 2017, Russia and Saudi Arabia were the two biggest suppliers of crude sent to Chinese refineries (data courtesy of World’s Top Exports).

  • Russia: US$23.7 billion (14.6% of China’s total crude oil imports)
  • Saudi Arabia: $20.5 billion (12.6%)
  • Angola: $19.8 billion (12.2%)
  • Iraq: $13.8 billion (8.5%)
  • Oman: $12.2 billion (7.5%)
  • Iran: $11.9 billion (7.3%)
  • Brazil: $8.8 billion (5.4%)
  • Kuwait: $7.1 billion (4.4%)
  • Venezuela: $6.6 billion (4%)
  • United Arab Emirates: $4.1 billion (2.5%)
  • United Kingdom: $3.6 billion (2.2%)
  • Congo: $3.44 billion (2.1%)
  • Colombia: $3.37 billion (2.1%)
  • United States: $3.2 billion (2%)
  • Malaysia: $2.6 billion (1.6%)

However, the US has been China’s fastest-growing supplier of crude, with imports from the US up nearly 2,000% since 2016 (though to be sure, the US only started exporting oil in 2016, and by volume, imports from Russia and Saudi Arabia have risen by a much more significant degree):

  • United States: Up 1,994% since 2016
  • Malaysia: Up 220.9%
  • United Kingdom: Up 101.1%
  • Congo: Up 60.5%
  • Colombia: Up 51%
  • Kuwait: Up 46.4%
  • Brazil: Up 46.2%
  • Angola: Up 42.9%
  • Venezuela: Up 42.8%
  • Russia: Up 40.6%
  • Saudi Arabia: Up 31.7%
  • Iraq: Up 29.3%
  • Iran: Up 27.2%
  • Oman: Up 9.1%
  • United Arab Emirates: Up 6.1%

But the worry here is, again, that the escalating trade battle with China will spill over into an all out trade war with the US on one side and the rest of the world on the other.

Such a development could see foreign economies blackball US crude – and the possibility that trade tensions could persist might be enough incentive for foreign refineries to look elsewhere. What’s worse all of this is happening just two years after the US allowed crude producers to begin exporting after a more than 30-year ban. 

And while these tensions have done little to slow the rally in crude prices, they could see the spread between WTI and Brent crude continue to widen.