The importance of China as a market for US oil exports

China will increasingly become the destination of US oil exports. China, India and the rest of Asia are home to virtually all the anticipated growth in global oil demand. China is the largest customer for U.S. crude, importing about 363,000 barrels per day (bbl/d) in the six months ended in March. Thomson Reuters shipping data shows those exports have increased since, rising to an expected 450,000 bbl/d in July.

Chinese oil demand surges as growth of refining capacity occurs

While there is a lot of hype about the US becoming an oil exporter, there has been less discussion about the importance of China as a market. China’s economic growth is well known. In order to satisfy the needs of its economy as it continues to develop, China is preparing itself with refining and petrochemical capabilities. However, the Chinese need to import the oil required to feed these plants. More than 3 million barrels per day new refining capacity is being installed between 2017 and 2020 in China, mostly by independent refiners meaning that by 2020 China will have a 16 million bbl/d refining capacity. In contrast, the refining capacity in the US in 2017 was 18 million bbl/d, having increased only slightly in the last year.

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Chinese Tariffs would hurt US shale exports

Geopolitical considerations weigh in future outcomes for oil exporters in the short term and in the long run. US shale producers are starting to respond to China’s threat to impose a 25% tariff on crude, natural gas and coal starting on July 6, 2018, in retaliation for the Trump administrations planned tariff on Chinese goods. The tariff would hurt everyone in the short term, but U.S. crude will continue to flow to market even with tariffs, though prices could be hurt. We at Q2 Technologies are deeply concerned for the implications of these possibilities and hope that the trade dispute between the two countries is resolved quickly.

Furthermore, it will be interesting to take notice of how current suppliers in the Middle East, Russia and elsewhere respond to the Chinese market opportunity. Similarly, for Americans and for any country interested in the American market, it will also be relevant to consider the implications of the recently established American embargo on Iran given that it is an oil supplier on one hand, and a potential client on the other.

Dr. Laura Resendez from Rice and Beans Culture