Sharply higher Chinese purchases of US energy products as part of the China-US trade deal will shake up global crude oil trade flows if American supplies squeeze rival crudes out of the top oil import market, trade sources said.
China's pledge to buy at least $52.4 billion worth of US energy products over the next two years can only be met through substantial increases in crude imports from the United States, the top global oil producer, according to traders and analysts.
But 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.
"US crude is always a good choice to diversify supplies and press down West African crude prices," said a source with a Chinese state-owned oil company, while adding that freight rates were now very high.
Traders said some African crude grades had characteristics similar to US oil that made them replaceable in refiner mixes.
Most African grades also trade mainly on the spot market, making it easier for importers to switch them out than supplies tied to long-term contracts.
US crude has not been offered to Chinese independent refiners yet, but several trade sources said that without Beijing's prevailing 5% tariff on US oil 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, making it attractive. China's return as a major US oil buyer could help soak up excess supplies as production in the United States is expected to hit records in the next two years, although a recent surge in freight rates for US oil shipments to Asia has slowed exports.
Big Chinese orders of US oil could put some pressure on other Asian buyers, such as India, South Korea and Taiwan, which all boosted US 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.
China's US crude imports dropped 43% to 138,790 barrels per day (bpd) in the first 11 months of 2019 from a peak of 245,600 bpd in 2018 after Beijing imposed a 5% import tariff on US oil amid as trade tension rose between the world's biggest economies.
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