Oil opportunity in China-US phase one deal
The U.S. is now in a prime position to meet China's ravenous energy needs
U.S. Secretary of Agriculture Sonny Perdue discusses the agricultural purchases China will be making under the phase one trade agreement between the U.S. and China as well as the unilateral enforcement mechanism under the deal.
The U.S. -China phase one trade deal is done and while there is a lot of focus on the agriculture sector, over time, it will be the U.S. energy sector that will benefit from the deal the most.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| USO | UNITED STATES OIL FUND - USD ACC | 71.29 | +0.56 | +0.79% |
In the “phase one”, China has only committed to buy over $50 billion more in energy supplies, but there is a good chance they could exceed that figure very quickly. China wants U.S. oil and gas not only because of their record demand but also because of the price advantage U.S. producers hold over other producers of oil and natural gas. Better trade relations with China may also help with Iran said U.S. Treasury Secretary Steven Mnuchin during an interview on Fox's ‘Sunday Morning Futures’ with Maria Bartiromo as the U.S. is working closely to cut off Iranian oil exports.
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Treasure Secretary Steve Mnuchin discusses the impact of new Iran sanctions on ‘Sunday Morning Futures.’
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| UNG | UNITED STATES NATURAL GAS FUND - USD ACC | 13.14 | -0.97 | -6.91% |
China’s demand for crude oil and natural gas continues to shatter records as the U.S. is now in a prime position to meet its ravenous needs. In data released this month by China’s General Administration of Customs agency, the country imported a record 506 million tons of crude oil. That is equivalent to 10.12 million barrels per day. Chinese natural gas imports, including fuel supplied as liquefied natural gas (LNG) and via pipeline, were 9.45 million tons, the third-highest on record monthly. That made China the world’s largest natural gas importer.
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China has been energy import crazy and that should have been a big win for U.S. energy.
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Yet the trade war had China seek other places over the U.S. for its energy needs, including Iran. The trade war has hurt U.S. energy exporters as we start to become a world energy exporter. U.S. exports to China of crude oil and petroleum products hit a record high of 23,951,000 barrels in October of 2017 but have fallen to just 1,119,000 last October, the most recent reading from the Energy Information Administration (EIA). U.S. shale producers have been struggling because they have been producing more energy than we currently need and China would be the perfect customer.
The U.S. has just what China needs. Even with the trade war hanging over their heads, the U.S. exported nearly 4.5 million barrels of crude per day two weeks ago which was a new weekly record. The U.S. is producing more oil and natural gas than it needs and China should be a willing buyer. If they act now, the country could take advantage of locking in contracts at favorable prices.
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But better trade relations may have even more benefits than just energy. In can help us out geopolitically as well. It appears that China will work with the U.S. to pressure Iran by cutting off its purchases of Iranian oil. Roughly 70 percent of the remaining Iranian oil exports are being sent to China, which remains Iran's biggest crude buyer. Mnuchin said Chinese state-owned companies have ceased buying Iranian oil, suggesting that only independent refiners continue making such purchases. He also said the U.S. was, "working closely with [China] to make sure that they cease all additional activities [with Iran].”
So while the energy markets view the phase one trade with cautious optimism, the long-term benefits of a fair-trade deal with China will extend far beyond energy into a new and prosperous economic era.
An era powered by U.S. oil and gas.
Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com.
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