China has responded to the Trump administration’s recently implemented tariffs on steel and aluminum with tariffs on imports of 128 American made products that range from 15% to 25%. The list of products are wine, frozen pork, nuts, fruits and aluminum scrap. Not on the list, U.S. crude.
China’s growing dependency on crude imports worldwide makes it no surprise as to why U.S. crude exports were not included on China’s long list of import products that will be subject to tariffs. China surpassed the U.S. in annual gross crude oil imports in 2017 by importing 8.4 million barrels per day (b/d) compared to 7.9 million b/d of U.S. crude oil imports.
The United States has been able to increase market share in China in part because major oil exporters OPEC and Russia have limited their production in order to balance an oversupplied market. Another factor that backs U.S. crude exports is that U.S. crude values are trading at a discount to international oil prices. The price difference between U.S. West Texas Intermediate crude and international benchmark Brent crude is just over $3/bbl currently, but has been as high as $5.5/bbl earlier this year. As long as U.S. crude is discounted, it will entice buying from consumers in Asia and Europe.
According to the EIA, U.S. crude oil exports rose to an average of 1.1 million barrels per day (b/d) in 2017 which nearly doubled the level of exports seen in 2016 when the U.S. crude exports ban was lifted. With Chinese oil demand expected growth at 6% to over 12 million b/d in 2018 combined with Chinese import dependency slightly increasing to a record 70% the expectations are that U.S. Crude exports will continue to rise.
China surpassed the United Kingdom and the Netherlands to become the second-largest destination for U.S. crude oil exports in 2017.