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With the trade war between China and the US escalating and with
tariffs now in effect, it comes as no real surprise that oil prices
have been declining this week. The big question remains what to
expect from next week's meeting of OPEC members. The oil industry
may start looking beyond Saudi Arabia's control, but any
announcement could cause more price movements in the
short-term.
Meanwhile, all eyes are now on China. The country's imports of
US crude oil decreased in Q3 2018, long before the new tariffs. But
the latter is rather significant, as China is now not expected to
rely on US volumes in 2020, when requirements for light grades are
set to boom. Beijing will have to source from elsewhere, while
Riyadh will have to decide in favour or not for its most important
client.
Saudi Arabia's market share in Chinese imports has improved
significantly this year, bringing the country back to the top in
the list of seaborne crude oil suppliers, while Saudi Arabia
recently surpassed Russia in overall flows to China. As Russia
typically produces heavier crude oil grades, this trend is expected
to last.
As Iran and Venezuela are not expected to recover any time soon
due to US sanctions, there are not many options left for China. The
anticipated growth in Chinese demand for light crude could be
easily satisfied by Saudi Arabia, if the Middle Eastern producer
decides to support China's requirements.
Saudi Arabia has been producing around 500,000 b/d below its
commitment. With IMO 2020 approaching soon, Chinese refineries will
accelerate their production of LSFO. If the kingdom gets tempted to
increase output, this could push oil prices much lower. The domino
effect would then be felt on US production, with several companies
already prioritising the improvement of operations instead of
further production growth for next year.
Posted 06 September 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime, Trade & Supply Chain, S&P Global Market Intelligence
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