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COLUMN-Asia's imports of U.S. crude hit record, but pullback likely: Russell

Clyde Russell

(The opinions expressed here are those of the author, a columnist for Reuters.)

* GRAPHIC: Asia's imports of U.S. crude vs. Brent premium over WTI: https://tmsnrt.rs/2PEXanc

LAUNCESTON, Australia, Sept 3 (Reuters) - Asia's crude oil imports from the United States climbed to a record in August, but that may be as good as it gets for some time - and it's not just the escalating trade war between Washington and Beijing to blame.

Asia imported 1.34 million barrels per day (bpd) of U.S. crude in August, just eclipsing the 1.33 million bpd in July, according to vessel-tracking and port data compiled by Refinitiv Oil Research.

Part of the strength in arrivals of U.S. crude was down to China, which imported 384,000 bpd in August, the most since June last year and up from 197,000 bpd in July.

China started importing U.S. crude in meaningful volumes in July, with the cargoes having been arranged during a brief lull in the extended trade dispute with Washington in the second quarter of this year.

Earlier in 2019, and toward the end of 2018, China's imports from the United States had dropped dramatically, with no vessels arriving October and November of last year, as well as January, March and June of this year.

In the other months since September last year, only a handful of U.S. vessels discharged in China, until the resumption of strong volumes in July.

However, this flow is likely to be crimped once again after Beijing imposed a 5% tariff on U.S. crude as part of the latest tit-for-tat tariffs that started on Sept. 1.

Refinitiv data shows three vessels from the United States due to unload in China in September and a further four in October, although it's possible that these cargoes will be sold to buyers outside China while still in transit.

The lower imports by China will contribute to a drop in U.S. crude exports to Asia in September, which Refinitiv estimates at 1.04 million bpd.

But it's not only China cutting back on U.S. crude, with other buyers including Japan, India and Taiwan also paring purchases this month.

Only South Korea, the top buyer of U.S. crude in Asia, appears to be importing more, with September arrivals estimated at 584,000 bpd, up from 421,000 bpd in August.

WTI LOSES PRICE EDGE

While the trade conflict accounts for China's loss of appetite for U.S. crude, the pullback by some other Asian buyers is more likely related to a loss of price competitiveness.

When August-arriving cargoes were arranged by Asian buyers, most likely sometime in June, U.S. benchmark West Texas Intermediate (WTI) was trading at a substantial discount to the global benchmark light crude Brent.

On June 14, WTI was $9.24 a barrel cheaper than Brent, still fairly close to the $10.99 gap on May 31, which was the widest in a year.

Since then WTI's discount has narrowed and was at $4.54 a barrel on Monday, having been as low as $3.60 on Aug. 19.

Higher freight rates for Very Large Crude Carriers (VLCC), ships that carry around 2 million barrels and are the mainstay of the global oil tanker fleet, also erode the advantage of U.S. crude, given the longer sea journey from the Gulf of Mexico to Asia than for many competing light crudes from Africa, Europe and elsewhere in Asia.

A look at physical crude prices also shows a loss of competitiveness for U.S. exporters in recent weeks.

The price of physical WTI in Houston, as assessed by commodity price reporting agency Argus, was at $57.50 a barrel on Aug. 30, the last day it traded given Monday's U.S. public holiday.

Nigeria's Bonny Light <BON-E> was at $63.19 a barrel on Aug. 30, a premium of $5.69 a barrel over the U.S. grade.

In the middle of May, Bonny Light's premium to WTI Houston was $5.86 a barrel, and it was $5.95 in mid-June.

What this shows is some loss of competitiveness for the physical U.S. crude against a competitor from West Africa, even though not quite as big as the change in the futures pricing.

Nonetheless, in recent weeks U.S. crude has become more expensive for Asian buyers relative to similar grades from elsewhere, and this may limit the opportunities for U.S. producers to boost market share in the region to compensate for the renewed loss of shipments to China. (Editing by Kenneth Maxwell)