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China Readies for Record-Breaking U.S. Oil Haul in September

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(Bloomberg) — U.S. oil exports to China are set to reach a record next month in a sign that Beijing is stepping up purchases to meet its commitments under a landmark trade deal.

About 19 tankers have signed provisional bookings to load American crude for China in September, according to shipping fixtures, which are subject to change. If all of them set sail, exports could total 37 million barrels, the most on record for a single month.

Under phase one of the agreement between the world’s two biggest economies signed in January, China committed to about $52 billion of U.S. energy purchases over two years. However, relations deteriorated after President Donald Trump blamed China for the Covid-19 pandemic and treatment of Hong Kong, spurring concern among U.S. lawmakers that Beijing would not uphold its side of the deal.

Yet, China’s purchases have lagged the target. U.S. benchmark crude futures prices were in the $60-a-barrel range in January, but plummeted to negative territory in April. Since then, prices have moderated near $40 a barrel. A review of the deal set for August 15 was canceled and has yet to be rescheduled.

“Clearly the increased oil purchases could be positive, but until the postponed meeting to discuss progress on the trade deal actually happens, we don’t know if the U.S. is happy with its progress,” said Sandy Fielden, director of research for Morningstar Inc. Even then, “I don’t expect an uptick in U.S.-China relations prior to the election.”

Another reason China has stepped up purchases is to help fill their new Strategic Petroleum Reserve site in Zhanjiang, which will have a storage capacity of 32 million barrels, said Yuntao Liu, an analyst at Energy Aspects Ltd.

The facility is expected to be ready this quarter and will give China more capacity to bring U.S. crude, he said. There’s also been a rise in gasoline and petrochemical demand, encouraging Chinese buyers to take more naphtha-rich grades like U.S. oil, Liu said.

Prices Stable

Despite China’s increased purchases, U.S. crude prices have remained broadly steady, with Chinese demand filling the void left by weak U.S consumption. West Texas Intermediate crude prices along the Gulf Coast are at 80 cents a barrel above Nymex oil futures, unchanged from the start of this month.

Exports in May were at 35.2 million barrels, according to U.S. Census data compiled by Bloomberg. The May volume was also the most by any U.S. oil buyer for a given month, data show.

All but one of the tankers, which can carry about 2 million barrels each, will originate on the U.S. Gulf Coast. Unipec, the trading arm of Chinese’s largest refiners Sinopec, has booked some of those tankers, while a few others were chartered by PetroChina Co Ltd, a subsidiary of China National Petroleum Corp.

Still, fixtures can get canceled or rerouted if market fundamentals change.

(Updates throughout with analyst comments and impact on U.S. crude prices.)

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