US oil is trickling back into China after export boom goes bust

Key Points
  • Chinese buyers have cut off purchases of U.S. crude oil as the trade dispute between Beijing and Washington continues.
  • A Chinese refiner received U.S. crude from South Korean storage this week, and a ship carrying American oil is currently bound for China.
  • The ship could change destinations, and the issues at the heart of the trade dispute have yet to be resolved.
An oil tanker sits beside transfer pipes at a terminal as it prepares to unload its cargo of fuel on July 4, 2018 in Zhoushan, China.
VCG | Getty Images

The ongoing U.S.-China trade dispute stopped a surge in American oil exports to the Middle Kingdom, but as Washington and Beijing inch toward a deal, a trickle of U.S. crude appears to be making its way to Chinese shores.

The development comes as U.S. and Chinese negotiators recently wrapped up talks that prevented tariffs on hundreds of billions of dollars in goods from rising sharply on March 1. The dispute has disrupted once robust trade in energy products such as crude oil and liquefied natural gas between the world's two biggest economies.

China emerged as a major buyer of U.S. crude after President Barack Obama and Congress lifted the 40-year ban on exporting crude oil in 2015. During some months last year, China surpassed Canada as the top importer of American oil.

Beijing has declined to slap an import tax on U.S. crude in retaliation against the Trump administration's tariffs on Chinese goods. But Chinese buyers nevertheless stopped purchasing American supplies last year as the trade dispute with Washington escalated.

After the long pause in trade, China recently offloaded its first shipment of U.S. crude oil this year, although in a roundabout way. About 468,000 barrels of U.S.-origin crude oil was pulled from storage at Yeosu, South Korea, and shipped to China, according to tanker-tracking firm ClipperData.

Hongrun Petrochemical, an independent refiner, received the shipment of Eagle Ford crude at Qingdao Port on Sunday, according to S&P Global Platts, which reported the transfer overnight.

There are also signs that China may soon receive direct shipments of crude oil from the United States.

According to ClipperData, a ship called the Hong Kong Spirit recently loaded almost 2 million barrels at Moda Midstream's Ingleside terminal near Corpus Christi, Texas, and in the U.S. Gulf. The VLCC — or very large crude carrier — is currently declaring for Yantai, China.

"This destination may, however, change en route, but for now signals optimism on the trade war front. By the time the VLCC makes it to China in April, trade war concerns may have dissipated," said Matt Smith, director of commodity research at ClipperData.

China imported no US oil in August because of trade tensions, analyst says
China imported no US oil in August because of trade tensions, analyst says

This comes after several vessels carrying U.S. crude believed to be potentially headed for China instead discharged their cargoes in other Asian destinations.

Earlier this month, Genscape forecast a ship called The Manifa would deliver U.S. crude to China by mid-February, but it is now scheduled to discharge in South Korea, according to both ClipperData and Genscape.

Genscape flagged three other ships bound for Singapore as potentially delivering American oil to China. ClipperData says one offloaded in South Korea, while two others are about to discharge in Korea or Taiwan.

One other vessel, the Jag Lakshya, delivered Canadian crude loaded in the United States to China this month.

Despite the disruption in trade with China, the U.S. is exporting record amounts of crude.