06 JUN 2019

Washington’s escalating trade war with Beijing hasn’t choked off the flow of American oil to China.

At least six million barrels of U.S. crude set off for Chinese refineries in May, according to ship tracking data compiled by Bloomberg. In June, American shipments to the Asian nation are expected to reach at least 4 million barrels, according to shipping reports and data from Kpler. The volumes are a marked increase from April, when China took just one supertanker of U.S crude, about two million barrels.

U.S. oil may just be too cheap to pass up. West Texas Intermediate crude is selling for almost $9 per barrel less than the global benchmark Brent, down from around $6 in April. While global supply risks have boosted the price of Brent, growing American production has kept WTI weak, making it more appealing to international buyers.

Clearly the trade war is a consideration,” but the WTI discount to Brent is attractive, said Sandy Fielden, an analyst at Morningstar Inc. Purchases made now could be sold later for a higher price — something Chinese companies started doing soon after the trade war began last year.

The three tankers that initially set sail for China in May have not signaled a destination change, even as trade tension ramps up. Meanwhile, a fourth ship headed for Singapore rerouted to Rizhao, China. One of the China-bound tankers, a very large crude carrier (VLCC), received its supply at the Louisiana Offshore Oil port in May, ship tracking data show. More could be headed to China from LOOP, America’s only facility that can fully load a VLCC.

LOOP Loadings

This month, the Port is scheduled to load six supertankers after shipping out two last month, according to a person familiar with the matter. If loadings go ahead as planned in June, it would be the largest monthly volume LOOP has pushed out since the terminal began supertanker exports last year.

That said, the trade war is heating up yet again, and with it comes heightened risk of a Chinese tariff on American crude. So far, oil has escaped that fate, but the market could see a repeat from last year when China’s imports of U.S. crude collapsed, Fielden said. If China does slap a tariff on U.S. oil, “some market traders might want to take it off Chinese buyers at a deep discount or sell it to the Russians who would need clean crude,” said Fielden.


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