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China seems to be finally purchasing more US crude oil again,
likely in an attempt to come closer to energy import quotas agreed
with Washington last year. Current prices support this as well with
Chinese refiners having reason to consider more flows of the
supercheap US barrels. So far in September, more than 700,000 b/d
have been shipped from US ports to China, with estimates that
volumes could even surpass 800,000 b/d by the end of the month.
Implications
US crude oil production fell sharply during H1 2020. The
recovery of the country's oil industry deeply relies on stronger
oil prices, but market signals suggest more time will be required
until this happens. Exports dropped from their record-high of 3.7
million b/d in February to much lower levels throughout June, when
the country only exported 2.75 million b/d of crude oil. Seaborne
exports of crude oil from the US increased in July to more than 2.9
million b/d, but have dropped since, having remained below 2.8
million b/d so far in September.
Outlook
Recent disruptions due to weather conditions have kept refining
capacity of nearly one million b/d offline in Louisiana since late
August. Concern around weaker demand due to Tropical Storm Beta
have also pushed US gasoline prices down. Market fundamentals have
turned more negative for gasoline demand due to more remote
working, schools remaining closed and a potential increase of
COVID-19 cases in the autumn.
...
China seems to be finally purchasing more US crude oil again,
probably in an attempt to come closer to energy import quotas
agreed with Washington last year. Current prices support this as
well with Chinese refiners having reason to consider more flows of
the supercheap US barrels. So far in September, more than 700,000
b/d have been shipped from US ports to China, with estimates that
volumes could even surpass 800,000 b/d by the end of the month.
Barrels loaded on tankers recently will only reach destination in
late November or even later. Whether this trade could prove
long-lasting is a different story, as China's imports overall are
recently sending signals of pressure. Meanwhile, increased flows
from the US to China in April-June have been highly related to
strategically built inventories or even floating storage. Chinese
refiners have been stocking up on cheap crude oil rather than
satisfying stronger demand.
Meanwhile, the sharp decline in US crude oil production during
H1 2020 further emphasized the much stronger market share China has
in US crude oil trade flows. With oil prices remaining below USD 45
per barrel, the situation isn't ideal for most US crude oil
producers. This could turn the country's supply tighter. US oil
recovery relies on stronger oil prices, but market signals suggest
more time will be required until this happens. The shock that the
global oil demand experienced earlier this year driven by the
COVID-19 pandemic pushed US crude oil exports significantly down.
Exports dropped from their record-high of 3.7 million b/d in
February to much lower levels throughout June, when the country
only exported 2.75 million b/d of crude oil, as reported by the
Energy Information Administration.
Most recent data by IHS Markit Commodities at Sea
suggests that seaborne exports of crude oil from the US increased
in July to more than 2.9 million b/d, but have dropped since,
having remained below 2.8 million b/d so far in September. Despite
having been under pressure, US exports in H1 2020 are still higher
than a year ago.
US crude oil seaborne exports by region of destination
in b/d
US Gulf production has recently been affected by the weather
too, with Tropical Storm Beta having caused up to 10% of the
region's oil production to remain offline for the week commencing
September 21st, just after Hurricane Sally. Hurricane Laura had the
biggest impact on US production in late August. However, Beta is
also affecting tanker movements from Texas coast to Souh West
Louisiana.
Refineries near Corpus Christi area will continue operating
during Beta but will closely monitor the storm, as refining
capacity of nearly one million b/d remains offline in Louisiana
after hurricanes Laura and Sally. Together with the lower export
demand, more pressure has been added against locally produced
grades such as Mars medium sour crude, with price differentials to
cash WTI narrowing further.
Concern around weaker demand due to Tropical Storm Beta have
also pushed US gasoline prices down. Market fundamentals have
turned negative for gasoline demand due to more remote working,
schools remaining closed and a potential increase of COVID-19 cases
in autumn.
