The buying binge is about to end. Just this month alone, China could import within 867,000 BPD, as stated by the Reuters’ Refinitiv data. And further 900,000 BPD, as told by the oilfield services company Canary. After that, the flow of U.S. oil into China will sink sharply, Reuters’ Clyde Russell addressed this week.
The deduction is as simplistic as it is troubling. The U.S. crude that has been proceeding into China since July—and attaining significant records in terms of quantity, with the July daily average entirely up 139 percent on the year—was acquired much earlier, in April, May, and June. The pirchase of this oil comes from when West Texas Intermediate was trading at multi-year lows. By June, it had improved to about $40, Russell remarks, so acquisitions since then have been more economical.
However, here is the troubling part: much of the oil price improving this spring was generated by rising Chinese imports, including from the United States. Increasing imports traditionally mean increasing demand, but this has not been the problem completely. Chinese refiners have been stocking up on crude more because of the historically low prices than to meet burgeoning demand.
In all honesty, the oil demand increase is accelerating after the lockdowns there. Furthermore, as China is not a separate economy, its refining industry requires recovery from Asia and worldwide, slow in coming. Presently, none other than OPEC is signaling that the second wave of coronavirus infections—already evident in parts of Europe, for instance—will moreover slow down market recovery, which will unavoidably affect Chinese oil imports.
As told by Canary CEO Dave Eberhart, China will proceed to buy numerous U.S. oil ahead of the U.S. votes
Beijing, Eberhart penned for Forbes, that he would want to linger on Trump’s right side as much as attainable if he gets a second term.
Yet not everyone accepts that politics will trump the economy. Data from Chinese market research firms advise private refiners may distinctly cut their foreign oil intake this month and next. Subsequently, the storehouse space is limited. Chinese energy firms have been packing it up for months now while demand has been increasing but is yet to return to extension mode, even in China, with its rebounding economy.
It seems like the prevailing opinion is for a drop in Chinese oil imports from the U.S. and abroad in the upcoming months, not limited because of lower refinery run rates. Reuters published earlier this week that refinery runs are estimated to be cut by 5-10 percent starting this month. This is due to a crude oil oversupply and weak fuel export margins. This would suggest more stress on prices. And this is not complete. Some analysts presume that
China may begin selling the oil it purchased on the cheap in the spring. Now that would be terrible news for oil prices.