Trade tensions could see China oil imports from US tumble
Tanker tracking data seems to show risks are rising that US oil shipments to China are falling off a cliff
Crude oil isn't formally part of the trade dispute between the United States and China, but it may well be the first major flow to be disrupted significantly by the rising tensions.
One of the successes in the efforts to lower the trade surplus enjoyed by China over the United States was exports of crude, a result of the shale oil boom that has taken the US to within a whisker of being the world's top oil producer.
Crude exports from the United States to China have surged this year, with vessel-tracking and port data compiled by Thomson Reuters Oil Research and Forecasts showing China imported 60.2 million barrels, or about 333,000 barrels per day (bpd), of US oil in the first half of the year.
This was up from just 24.9 million barrels, or 138,000 bpd, over the same period last year, according to the data.
Much of the gain so far this year has been in recent months, with the April to July period being four of the five strongest months on record, and January this year being the other.
July is set to be the second-strongest month for Chinese imports of US crude, with the data pointing to the arrival of 12.32 million barrels, or about 397,000 bpd.
Expected shipments in August appear to be heading substantially lower, however, with only 9.58 million barrels, or about 309,000 bpd, expected to arrive at Chinese ports.
While these numbers may still change, they are unlikely to shift much, given the typical six-week journey between US ports in the Gulf of Mexico and China.
This means all US cargoes slated to arrive in China in August should have already left.
It also means most cargoes likely to arrive in September would also have departed the United States, but so far no such fixtures are showing.
This doesn't mean there will be zero US crude exports arriving China in September, but it does raise the possibility that there will be a sharp decline.
To put it in perspective, of the 10 US cargoes unloaded in China in June, nine left US ports in April.
Given there is only one week left of July and no cargoes have yet left the US for arrival in China in September, it seems risks are rising that US oil shipments to China are falling off a cliff.
This may add to the existing trade tensions between China and US President Donald Trump, who has made it clear he wants a lower trade deficit with China.
If crude oil exports do plummet, though, the trade deficit is likely headed higher, notwithstanding tariffs already placed on some Chinese exports by the Trump administration.
While this sounds like a poor outcome for US crude exporters, there is evidence suggesting other importers in North Asia are taking up cargoes no longer being bought by China.
South Korea may import a record amount of US crude in September, with vessel-tracking data pointing to the arrival of 5.94 million barrels, or about 198,000 bpd.
Japan may bring in 2.6 million barrels in September, or about 86,600 bpd, the highest since January this year.
Taiwan's imports from the United States are slated at 5.89 million bpd for August, or about 196,300 bpd, which would be the highest on record.
While additional imports from Japan, South Korea and Taiwan are probably insufficient to make up for the loss of Chinese purchases, they will provide some comfort to US oil exporters.
But they are also unlikely to do anything to ease the trade tensions between the Trump administration and China.
The looming slump in China's purchases of US crude may be taken as a sign that Beijing is prepared to fight back against Mr Trump, even if the tactics are somewhat different.
Rather than impose tariffs, China may simply persuade its state-owned refiners to move away from buying US crude.
This means pain can be inflicted on the United States without needing to impose tariffs or resorting to the bombastic rhetoric that typifies the Trump administration.
Updated: July 24, 2018 12:30 PM