Phase 1 of the trade deal with China calls for better protection of intellectual property and no more forced technology transfers. Those are easy enough for the Chinese to implement on their own, if they choose to follow through. But another part of the deal requires the Chinese to buy at least $52.4 billion worth of U.S. energy products over the next two years. Unless the Chinese want a glut of oil and natural gas sitting around, they’ll have to make some changes, which will mean buying less from their other trade partners.
To make way for any surge in American shipments, Chinese importers are expected to dial back orders of similar or pricier grades from places such as Brazil, Norway and West Africa – potentially triggering a shake-up of the light sweet crude oil market that could span the globe.
Chinese independent refiners don’t buy U.S. crude yet, but the value of West Texas Intermediate (WTI) Midland delivered to China was estimated to be 50 cents to $1 a barrel cheaper than Brazil’s Lula crude and some West African crudes.
If China follows through with major purchases of U.S. oil inventory, it could be a huge boon to U.S. frackers, who’ve been plagued by oversupply as world demand grows at a tepid pace.
Big Chinese orders of U.S. oil could put some pressure on other Asian buyers, such as India, South Korea and Taiwan, which all boosted U.S. oil imports in 2019 while China was sidelined, the sources said.
Goldman Sachs analysts estimated in a Jan. 10 report that China may increase its crude imports to 500,000 barrels per day in 2020 and 800,000 bpd in 2021, from the current pace of 139,000 bpd. Before the trade war, China imported just under 250,000 bpd from the U.S.