A Storm Is Brewing For U.S. Oil Exports

Authored by Tsvetana Paraskova via OilPrice.com,

Two geopolitical developments in recent weeks - U.S. sanctions on Iran and the escalating U.S.-Chinese trade war - are set to reshuffle the U.S. oil flows to the world’s fastest-growing oil market, Asia.

On the one hand, the United States is pressing Iran’s oil customers to cut their Iranian crude imports by as much as possible. China is Tehran’s biggest oil buyer, and India is its second. While India is reportedly preparing for a drastic reduction of Iranian oil imports, China will continue to buy Iranian oil.

On the other hand, China is threatening to impose a 25-percent tariff on U.S. crude oil and oil products after the U.S.-Chinese trade war took a turn for the worse in recent weeks. Such a tariff would make American crude oil uncompetitive in China, and U.S. oil sellers will have to find alternative buyers for their crude to replace the volumes they are currently selling to their second-largest oil customer after Canada.

India is an obvious possibility - its imports and demand are surging, and it may be willing to replace at least part of its Iranian oil imports out of fear that its companies and the sovereign could lose access to the U.S. financial system should it continue to buy Iran’s oil.

But the problem with India possibly replacing Iranian oil with U.S. crude is that American light oil isn’t a substitute for heavy high-sulfur Iranian crude.

India began regular U.S. imports last year, but the volumes are currently small, especially compared to the U.S. crude exports to China, EIA data shows. But in May, India’s imports of U.S. crude oil jumped by nine times the April volumes—signifying that at least a partial switch is already underway.

“Shale crude is not an alternative to Iranian crude,” Sandy Fielden, director of research for commodities and energy at Morningstar, told Bloomberg. “Indian refiners can’t absorb all the U.S. oil that was going to China. They can import more, but can they process it?”

If China follows through with its threat to slap tariffs on U.S. oil imports, it would put downward pressure on the WTI Crude benchmark and widen its discount to Brent Crude, which could be make U.S. oil even more attractive to Indian buyers, according to Fielden.

Still, analysts doubt that the United States will be able to easily find alternative buyers for the oil it has been selling to China.

India may raise its U.S. oil imports, but it would hardly be able to replace all the American oil that a Chinese tariff could possibly cut off.

“While China could secure the crude from alternative sources, such as West Africa which has a similar quality to U.S. crude, the U.S. would find it hard to find an alternative market that is as big as China,” Suresh Sivanandam, senior manager, Asia refining, at Wood Mackenzie, said last month, commenting on the impact of possible Chinese tariffs on U.S. oil imports.

According to WoodMac, U.S. crude oil exports to China averaged around 300,000 bpd in the first quarter this year, accounting for just over 20 percent of all U.S. crude oil exports.

One Chinese buyer is said to have already suspended imports of U.S. oil, turning to Iran as one of its alternative sources of crude.

As far as India’s imports of Iranian oil are concerned, there have been signs that buyers are preparing back-up plans in case they are unable to import Tehran crude when the sanctions hit.

India will first cater to its own national interest, its oil minister Dharmendra Pradhan said in an interview with BusinessLine published over the weekend.

We will first look at our national interest. India’s energy basket has multiple sources now. Our focus will be to see that our requirement is not affected, and to ensure this, we will do what we have to do. But, we will also keep a watch on global geo-politics,” Pradhan told BusinessLine.

With geopolitics—tariffs and sanctions—reshuffling the oil interests and oil flows of the U.S., China, India, and Iran, India alone may not be enough to absorb the U.S. oil exports to China, currently America’s second-largest single oil customer after Canada.

Comments

LawsofPhysics Wed, 07/11/2018 - 09:34 Permalink

The U.S. remains a net importer of crude, period.

Don't think oil (regardless of it's source) has any real value, try pushing your car a mile or not using ANYTHING derived from reduced hydrocarbons.

stupid is as stupid does...

"Full Faith and Credit"

same as it ever was!

SlowBro LawsofPhysics Wed, 07/11/2018 - 09:39 Permalink

You think this is bad news? It’s not as bad as the fact that in 1972 a crack commando unit was sent to prison by a military court for a crime they didn't commit. These men promptly escaped from a maximum security stockade to the Los Angeles underground. Today, still wanted by the government, they survive as soldiers of fortune. If you have a problem, if no one else can help, and if you can find them, maybe you can hire the A-Team.

In reply to by LawsofPhysics

The_Juggernaut Four Star Wed, 07/11/2018 - 10:04 Permalink

We're to believe that India can't easily replace Iranian imports with US oil, but China can easily replace US oil with Iranian oil.  We should also believe that when China buys oil from other sources such as West Africa, the former buyers of that oil won't just buy it from the US. 

Completely horseshit article likely authored by China.  I can't believe anybody is stupid enough to believe it.

In reply to by Four Star

Grandad Grumps Wed, 07/11/2018 - 09:38 Permalink

People keep claiming there is a trade war. There is no trade war. Everything being done is by mutual agreement or at the direction of the controllers.

We live in a weird place.

RationalLuddite MrNoItAll Wed, 07/11/2018 - 12:34 Permalink

Yeah, and the earlier version of such brain disconnection was "and God works in Mysterious ways".

 

Fuck guys,  watch less Corbett Report  (he is starting to lose the plot unfortunately) and look up "post hoc Rationalization".

 

Jesus fuck the BS that passes for 'logic' these days is depressing. 

 

P.s. also how can OilPrice.com be so consistently clueless on the basic physics and processing in their supposed area of expertise is mindboggling. Two things we appear to  have in abundance are High Functioning Autists and Cluster B personality disorders.  What the fuck happened to sentient adults?

In reply to by MrNoItAll

Fiscal Smegma Wed, 07/11/2018 - 09:41 Permalink

"But the problem with India possibly replacing Iranian oil with U.S. crude is that American light oil isn’t a substitute for heavy high-sulfur Iranian crude."

 

Bullshit, Light Sweet is way better for producing fuel.

Chief Joesph Wed, 07/11/2018 - 10:24 Permalink

A Chinese Tariff of 25% on U.S. oil is bad enough.  But, the real lynch pin of this game, is keeping the dollar in circulation to keep it viable as a medium of exchange, and America's own economy back home afloat. As it stands now, there are 9 of the 14 OPEC countries willing to sell oil in another currency other than dollars, to get around the U.S. threats of sanctions and tariffs.  And as the article said, the U.S. doesn't have very many alternative buyers for its oil.  China could lock the U.S. out of the oil market if it got the rest of OPEC to trade in petro-yuans instead.  That would be the end of the U.S. dollar and your economy at home, and China would ultimately win the trade wars.

Iknowstuff Wed, 07/11/2018 - 10:24 Permalink

"But the problem with India possibly replacing Iranian oil with U.S. crude is that American light oil isn’t a substitute for heavy high-sulfur Iranian crude."

I had an indian boss once upon a time and in our discussions he mentioned the diesel pumps they use for irrigation. I can not remember the name of them off hand but he said they ran on dirty diesel. I had to find out what that is. It turns out that these low compression single cylinder diesels can run for years because of the high sulfur content that lubricates the upper cylinder components. Look at american low sulfur diesel and on the pump is a warning sticker that indicates it may damage engines not made for its use. Yea their not gonna buy our shit oil.

Herdee Wed, 07/11/2018 - 10:36 Permalink

Guaranteed that if Trump puts more tariffs on China, they'll be no American oil or LNG ever going to China. It'll all come from Russia and Iran by pipeline and ship. Europe might even tariff it or cut it off.

FringeImaginigs AvoidingTaxation Wed, 07/11/2018 - 12:45 Permalink

Exactly!  And as if the world has soooo much oil that it doesn't need every drop. Didn't Trump just ask the Saudi's to increase their production by 2m barrels a day because the world needs it.  And it's as if China believes that oil is not a fungible item. HaHa.. slap 25% tarrif on fungibles. Go back and take ecnonomics 10 and 11 before you enrol in economics 101.  

In reply to by AvoidingTaxation