As trade negotiations weighed on U.S. ag exports to China in 2019, crude oil exports were quietly increasing, even as demand from China dwindled. According to the Energy Information Administration (EIA), crude oil exports from the United States surged 45% from 2018. In 2018, China was the third largest importer of U.S. crude oil, but in 2019 exports to China fell nearly 100,000 barrels per day to just 133,000 barrels per day in 2019.
EIA notes in its report, This Week in Petroleum, “U.S. crude oil exports to China were more than offset by increases to other destinations, resulting in shifting trade patterns.” Exports to South Korea rose 76% on the year. Shipments to the Netherlands more than doubled, up 113% on the year and India increased imports of U.S. crude by 69%. The increase in output was made possible by an 11% jump in U.S. crude production and by a mismatch in Gulf Coast refiner demand.
Refiners at Gulf Coast locations are set up to process heavy, sour crudes while the production increases have come mainly from light, sweet crude oil. That means refiner demand at the Gulf was satisfied with sour crude, while a glut of light, sweet crude was available for export. World demand was bolstered by the 2020 International Maritime Organization marine fuel sulfur regulation, which requires cuts to the sulfur content of marine fuels.
The completion of pipeline capacity from producing regions including the Permian Basin to the Gulf also contributed to increased crude oil supplies available for export. According to EIA, “about 2.8 million b/d [barrels per day] of additional pipeline capacity was scheduled to be completed in 2019 in Texas alone.”
The coronavirus has hist South Korea hard, an area noted by EIA to have sharply increased U.S. crude imports in 2019. That may result in a slight, short-term pullback in shipments to South Korea. But if reports are to be believed, the virus is levelling-off in China and workers are returning to the job. Once the disease has run its course in South Korea, it is likely that nation will resume booking U.S. crude at pre-coronavirus levels.
With the International Maritime Organization requiring lower sulfur content in marine fuels and low sulfur light, sweet crude flowing freely to the Gulf Coast for export to satisfy the requirements, export demand for U.S. crude is likely to remain strong, especially if crude trade with China normalizes and returns to the levels seen prior to the trade war.
EDITOR'S NOTE: As of 11:30 am, Friday March 5, April crude oil futures were under pressure; off $3.86 on the day to $42.04. April heating oil futures off 11 cents at $1.40.