The Herald (Zimbabwe)

China shuns US oil despite trade war truce

- Florence Tan

CHINA, the world’s top oil importer, is set to start 2019 buying little or no crude from the United States despite a threemonth truce in a trade scrap between the two nations, with relatively high freight costs and political uncertaint­y choking demand.

That muted appetite means the United States, which became the world’s top oil producer this year as its shale output hit record levels, will continue to hold only a sliver of China’s market even as a wave of new refining capacity starts up there.

It also suggests that China is unlikely to use crude purchases to help plug a widening trade gap with the United States, which remains a core source of tensions between the world’s top two economies.

The US trade deficit with Beijing hit a record $43 billion in October as its firms stockpiled inventory from China to avoid higher tariffs that may kick in next year.

“Chinese companies have little incentive to buy US crude due to the wide availabili­ty of crude supplies today from Iran and Russia,” said Seng Yick Tee, an analyst at Beijing-based consultanc­y SIA Energy.

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

China stopped US oil imports in October and November after the trade war intensifie­d. It resumed some imports in December, but purchased just 1 million barrels, a minute portion of the more than 300 million barrels of total imports, Refinitiv data showed.

Chinese refineries that used to purchase US oil regularly said they had not resumed buying due to uncertaint­y over the outlook for trade relations between Washington and Beijing, as well as rising freight costs and poor profit-margins for refining in the region.

Costs for shipping US crude to Asia on a supertanke­r are triple those for Middle eastern oil, data on Refinitiv Eikon showed. A senior official with a state oil refinery said his plant had stopped buying US oil from October and had not booked any cargoes for delivery in the first quarter.

“Because of the great policy uncertaint­y earlier on, plants have actually readjusted back to using alternativ­es to US oil they just widened our supply options,” he said.

He added that his plant had shifted to replacemen­ts such as North Sea Forties crude, Australian condensate and oil from Russia.

“Maybe teapots will take some cargoes, but the volume will be very limited,” said a second Chinese oil executive, referring to independen­t refiners. The sources declined to be named because of company policy.

A sharp souring in Asian benchmark refining margins has also curbed overall demand for crude in recent months, sources said.

Despite the impasse on US crude purchases, China’s crude imports could top a record 45 million tonnes (10,6 million barrels per day) in December from all regions, said Refinitiv senior oil analyst Mark Tay.

Russia is set to remain the biggest supplier at 7 million tonnes in December, with Saudi Arabia second at 5,7-6,7 million tonnes, he said.

China’s Iranian oil imports are set to rebound in December after two stateowned refiners began using the nation’s waiver from US sanctions on Tehran. — Reuters.

 ??  ?? An oil tanker unloads crude at a terminal in Zhoushan, Zhejiang province, China
An oil tanker unloads crude at a terminal in Zhoushan, Zhejiang province, China

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