China importing more American crude

October sets record with nine ships a day leaving the US for China mainland

US oil exports to China continue to surge as American production increases and Beijing continues to diversify its roster of suppliers.

The US lifted a 40-year-old ban on oil exports two years ago as production levels rose to their highest in decades, boosted by surging shale oil and natural gas output in the US. In 2016, just four vessels carrying oil left the US destined for China. But in 2017, China has become the largest single buyer of US seaborne crude.

According to data from S&P Global Platts, October was a record month, with nine ships carrying a total of 369,000 barrels of oil a day leaving the US for China.

"US light-sweet crude is readily available for export from multiple terminals, shipped in vessels of all sizes, (is) easy to process, helps Chinese refiners to meet tightening product sulfur specifications, and is priced to be exported," Rick Joswick, managing director of global oil analytics for S&P Global Platts said in an email Monday.

To improve the environment, the Chinese government has said all diesel and gasoline must meet stringent standards with respect to impurities and sulfur levels. Beginning this month, China said it would stop domestic sales of diesel with sulfur content higher than 10 parts per million, typically used by tractors and ships.

Another factor in the surging of US imports is that member countries of the Organization of Petroleum Exporting Countries (OPEC) agreed to cut oil production earlier this year to reduce global inventories and support prices. This has reduced the supply of crudes from the Middle East which is typically medium/heavy grades with a high sulfur content making them more expensive to process, S&P Global Platts said.

"With Chinese refinery runs increasing, refiners are looking for crude from all potential sellers. And with OPEC still restraining its output, rising US sales are a logical choice," said Joswick.

As to whether this trend will continue in 2018, Joswick said it's important to separate temporary factors from long-term trends.

"The US industry was hard hit by Hurricane Harvey, which cut refinery runs much more than production. This led to a backlog of crude inventory. Some of that is currently being exported and is likely to continue to support strong exports over the next few months until the US rebalances," he said.

Even though US oil exports to China are increasing, the country still receives most of its imported oil from Russia, Angola and Saudi Arabia.

paulwelitzkin@chinadailyusa.com