China-US Crude Buying Disrupts Oil Flow
China will buy more US energy products, including US crude. The purchases are part of the phase one trade deal between Washington and Beijing.
However, binge purchases could shake up world oil trade flows. American supplies could squeeze rival crudes out of the market, according to sources.
The Asian country has pledged to buy at least $52.4 billion worth of US energy products over the next two years.
However, this could only be possible through significant increases in crude imports from the US.
At the same time, China needs to scale back orders from similar or more expensive crude. And these crude orders come from places like Brazil, West Africa, and Norway.
Such a scenario could shake up the light sweet crude oil market on a worldwide scale. According to a source, US crude is good to diversify supplies and to lower the West African crude prices. The source added that freight rates have also been very high.
Meanwhile, traders are saying that African crude grades were similar to US oil. The same characteristics make them replaceable in refineries.
Most African grades also trade mostly on the spot market. So, importers can easily switch them out—more convenient than supplies with long-term contracts.
Chinese independent refiners don’t have access to US oil yet. However, the WTI Midland price to China was reportedly 50 cents to $1 per barrel cheaper than Brazil’s Lula and some West African grades. This quality makes US crude more attractive to buyers.
US Crude and Brent Rise after Phase One Deal
Elsewhere in commodity news, oil prices gained traction after receiving support from the signing of the US-China phase one deal. Inventories for US oil slipped more than the market expected.
WTI crude gained 30 cents at $58.11 per barrel, or 0.5% higher. Brent climbed 30 cents at $64.30, also 0.5% higher.
Official US data also showed a much more significant drop in crude oil inventories. This fall helped prop up prices. Inventories declined by 2.5 million barrels, comparing to expectations of a 500,000-barrel drop. The data came from the Energy Information Administration.
Gasoline stocks gained by 6.7 million barrels. Further, distillate stocks fetched 8.2 million barrels more, EIA said.
US crude production also climbed to a record 13 million barrels per day.
According to analysts, oil prices coming back to range trading. This event occurs after the threat of war between the US and Iran eased further.
Elsewhere in the commodities market, gold prices declined after the trade deal signing. Gold futures lost 0.1% to $1,552. 15.
In Germany, Chancellor Angela Merkel got a deal to kickstart the country’s coal exit. The deal offered billions in compensation to coal and utility regions. The closure of the plants will start this year.
Companies will also get billions in compensation. Utility RWE AG, which is the biggest coal power producer, will receive 2.6 billion euros in payments.e
Over in the Middle East, the International Energy Agency warned that Iraq oil supplies are “potentially vulnerable” due to rising political risks.
