China Increases Crude Oil Market Exports from the US... "Rapidly Replacing Saudi Arabia"

Increase in US Crude Oil Exports Due to US-China Phase 1 Trade Deal
Saudi Arabia and Middle Eastern Countries Impacted
US-China Market Foothold Yet to Be Seen

[Asia Economy Reporter Naju-seok] The United States is increasing its crude oil exports to China by pushing out Middle Eastern countries such as Saudi Arabia. As U.S.-produced oil increases in China, the world's largest crude oil import market, traditional oil exporters like Saudi Arabia face difficulties, while U.S. oil companies are finding a way out amid the COVID-19 crisis thanks to the Phase One U.S.-China trade agreement.

[Image source=Reuters Yonhap News]

According to the Wall Street Journal (WSJ) on the 5th (local time), as of mid-last month, the proportion of U.S.-produced crude oil among the oil imported by China reached 7%. Considering that this ratio was 0.4% in January this year, it has increased dramatically in just eight months. Meanwhile, the share of Saudi crude oil dropped from 19% to 15% during the same period. Furthermore, U.S. crude oil supplied to China is expected to increase even more.

The rapid change in China's crude oil import share by country in less than a year is due to the Phase One U.S.-China trade agreement reached earlier this year. As a condition for halting the trade war against China, the U.S. agreed that China would expand imports of U.S. agricultural products, energy, and manufactured goods. According to this agreement, China must purchase $52.4 billion (60.71 trillion KRW) worth of crude oil or natural gas from the U.S. by the end of next year.

As U.S. crude oil increases in the Chinese market, Saudi Arabia's position has become awkward. Saudi Arabia recently lowered the price of crude oil exported to Asia, but with reduced exports to China, not only Saudi Arabia but also Egypt, Singapore, and China have seen an increase in stored crude oil inventories. According to analysis by commodity market firm Kairos, Saudi Arabia's crude oil inventory is reported to be as high as 81 million barrels.

Other Middle Eastern countries besides Saudi Arabia have also been hit as the Chinese market is taken over by the U.S. It is estimated that other Middle Eastern countries, excluding Saudi Arabia, have seen a decrease of about 400,000 barrels per day in crude oil exports.

Originally, China's crude oil market was mainly supplied by Middle Eastern, Russian, and West African countries. Suddenly, U.S.-produced crude oil supply has increased, but the key question is whether this change will continue. A Saudi energy official drew a line, saying, "This change (expansion of U.S. crude oil supply) is temporary." There are various variables to consider, such as whether the Phase One U.S.-China trade agreement will be upheld as initially agreed, the upcoming U.S. presidential election next month, and the possibility of a regime change thereafter. Additionally, recent conflicts between the U.S. and China over Huawei and TikTok could become new variables.

However, some experts foresee the possibility that U.S.-produced crude oil will be supplied to the Chinese market for a long time. Chinese refining companies have already reorganized their plants to suit the characteristics of U.S. crude oil.

For now, U.S. crude oil producers see the ability to increase exports to China as a positive factor amid reduced oil demand due to COVID-19. Experts analyze that the Chinese market is acting as a kind of "cushion" for U.S. oil producers struggling during the COVID-19 crisis.

This content was produced with the assistance of AI translation services.