U.S. Markets closed

Big Oil Warned Trump That China Trade Deal Wouldn't Work

Irina Slav

The American Petroleum Institute warned the Trump administration that the U.S. oil industry would be hard pressed to produce all the oil China has committed to buy under the Phase 1 trade deal signed at the end of last year, Bloomberg reports, citing a closed door meeting between API officials and the Department of Energy last month.

“The United States’ ability to expand its exports of crude oil and other liquids would likely become a binding constraint,” the API said. “Even if production is available, logistical challenges remain with marine shipping and the Panama Canal.”

China committed to buying some $18.5 billion in additional energy supplies from the United States this year and another $33.9 billion next year. The supplies range from crude oil and LNG to coal and oil products.

According to the API, the total for 2020 and 2021 translates into an additional 1 million bpd of crude oil daily, half a million bpd of oil products and 100 cargoes of liquefied natural gas. Yet U.S. oil production is projected to grow by less than 1 million bpd, the API told the DoE.

However, in its latest Short-Term Energy Outlook, the Energy Information Administration said it expected U.S. oil production to rise by 1 million bpd this year from 2019 and by another 400,000 bpd in 2021. That could be enough to meet higher Chinese demand thanks to its trade deal commitment, but it bears remembering that these are production forecasts that can change just as much as oil prices change. In short, the 1.4-million-bpd production increase is not a certainty.

Even if the oil is produced, the deal would strain the shipping industry as well, the API told the Department of Energy.

Yet there are already doubts that China will be able to make good on its commitments. For one thing, LNG imports from the U.S. are not very competitive since China has left a 25-percent tariff on these. There is also more gas going into China from Russia via the Power of Siberia pipeline. In oil, the situation is being complicated by the coronavirus outbreak that has already pressured demand and may continue to pressure it for months to come.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

Read this article on OilPrice.com