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Congress to Limit U.S. Oil Exports to China: What Traders Need to Know

By Ellen R. Wald, Ph.DCommoditiesMar 02, 2023 05:16AM ET
www.investing.com/analysis/congress-to-limit-us-oil-exports-to-china-what-traders-need-to-know-200635820
Congress to Limit U.S. Oil Exports to China: What Traders Need to Know
By Ellen R. Wald, Ph.D   |  Mar 02, 2023 05:16AM ET
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  • U.S. Congress considering two pieces of legislation to limit oil exports to China
  • The first bill would bar oil released from the Strategic Petroleum Reserve (SPR) from being sold to China
  • The second bill would prohibit the export of crude and refined oil to the Asian country

The United States Congress is currently considering two pieces of legislation to limit U.S. oil exports to China.

The first bill, which was passed by the House of Representatives in January, aims to bar oil released from the Strategic Petroleum Reserve (SPR) from being sold to China.

The second bill, called the “China Oil Export Prohibition Act of 2023,” has been introduced to the Senate and would prohibit the export of crude oil, refined oil, and certain petroleum products to China. This bill has not yet come up for a vote in the Senate.

Traders should be aware of the potential market effects of this legislation because the pressure is mounting on U.S. lawmakers to take some action against China, particularly in response to the Chinese spy balloon shot down over the U.S. in February.

The first bill, impacting SPR sales, would not have much impact on the market because further SPR sales are unlikely at this point. Unipec, the trading arm of Chinese oil giant Sinopec Shanghai Petrochemical (OTC:SHIIY), did buy 950,000 barrels of oil from the SPR in July 2022.

This represented about 1/5 of all foreign purchases of U.S. SPR oil that were released last year. According to Rapidan Energy, the bill banning China from purchasing U.S. oil from the SPR is likely to pass the Senate by unanimous consent.

Traders should be aware that if this happens, the media will try to portray the legislation as more impactful than it actually will be, so there may be some initial reaction by the market, but in reality, there should be no actual impact.

The second bill, which is designed to severely limit—but not entirely ban—U.S. oil exports to China, would have a greater impact on the market. In 2021, China accounted for about 7% of the U.S. petroleum export market (crude oil and products combined).

It was the third largest customer, behind Mexico and Canada. In 2021, China imported 9% of all U.S. crude oil exports, making it the 5th largest customer. Notably, the bill to limit U.S. petroleum sales to China provides an exemption for NGLs, which account for about one-third to one-half of China’s imports.

This bill is unlikely to pass the Senate or the House because it would negatively impact U.S. oil producers and refiners. China isn’t the most important market for U.S. crude oil or petroleum products, but it is a significant market.

Closing off a market for U.S. crude oil and refined products would likely cause the price of WTI to drop slightly. While this might be good for U.S. consumers, it could cause problems for refiners, who could find themselves with a glut of products intended for China that the U.S. market can’t absorb.

Eventually, U.S. crude and petroleum products intended for China would find other global outlets, but the adjustment period would hurt oil producers and refiners.

From China’s standpoint, a ban on importing oil directly from the United States would not be especially significant. In 2021, U.S. oil accounted for just 2.3% of China’s oil imports (the 11th largest source).

China tends to increase its imports from the United States when the spread between WTI and Brent widens, making U.S. oil relatively cheaper, but it never imports enough oil from the U.S. that a ban would cause hardship to China.

In addition, traders should be aware that any potential bans on oil sales to China would only impact direct U.S.-to-China sales. U.S. crude oil and petroleum products could still reach China through furtive ship-to-ship transfers through third-party trading companies. If China really wants U.S. petroleum, it will find a way to get it.

Disclosure: The author does not own any of the securities mentioned in this article.

Congress to Limit U.S. Oil Exports to China: What Traders Need to Know
 

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Congress to Limit U.S. Oil Exports to China: What Traders Need to Know

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Comments (14)
Tony Barnes
Tony Barnes Mar 05, 2023 5:06AM ET
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All gimmicks. Plenty of oil from Russia at discounted price.
Ac Tektrader
Ac Tektrader Mar 02, 2023 6:32PM ET
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Biden made no mistake ...he sold SPR oil into the world market at around an average price $90bl and since early November 2022 replacing it at $67-$72 pbl.... I'd say that's pretty smart. Complaints about limiting crude purchase to china will actually keep unleaded prices stable for the American consumer. I guess that's why the right wing is complaining.....
Ted Alfonsetti III
Ted Alfonsetti III Mar 02, 2023 6:32PM ET
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He's speculating on the price returning to equilibrium. With his latest release of our strategic reserve, which is held for times of war, our stockpile is at its lowest level since 1986. With tensions rising worldwide and environmental regulations hampering stateside drilling, I'd say his actions are pretty damn reckless and myopic. He's attempting to correct the market in the worst way possible, only doing so to raise his approval rating a point or two.
Sahil Ali
Sahil Ali Mar 02, 2023 6:32PM ET
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bitcoin uptade news
Sahil Ali
Sahil Ali Mar 02, 2023 6:32PM ET
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give me what's up numbar
marki bigjohnson
marki bigjohnson Mar 02, 2023 6:32PM ET
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Biden is just an arrogant old fool. This is the best news Putin could get. China's discount on Russian crude just got smaller. More money for Russian weapons
gary leibowitz
gary leibowitz Mar 02, 2023 1:32PM ET
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Missing the point.  Trade wars with China spilled over to political alignment wars. The shift to dictatorial national alignments in China is obvious. We already expect China to invade Taiwan within the next few years.  Some generals have predicted the start of a World War is not only possible but likely.  We seem to treat common sense projections and facts as nonsense because we don't want to deal with the ramifications. The pandemic was a perfect example. the stock market for weeks ignored the realities till it bit us in the ass.  We are heading for a global war, first on trade then in military force.   Have we not learned our lesson?  This one will be extremely painful for the very survival of the human race.
Ac Tektrader
Ac Tektrader Mar 02, 2023 1:32PM ET
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if China invades and conquers Taiwan they will not stop there, if there is no response from the west.... they had an empire in the past with vassal states in east asia. china will attempt to create another empire if there not stopped.
Gary Chao
Gary Chao Mar 02, 2023 1:32PM ET
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Ac Tektrader  stupid comment.  Do you know where is Taiwan?  Do you know that you can drive from north to south Taiwan only less than 6 hours on that tiny island?   There is no war there and will not have any war there.  That is most Chinese on both sides think from their heart. We also pray for no war at all as an oversea Chinese.
andy ng
andy ng Mar 02, 2023 12:38PM ET
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China will buy more oil from other countries, US is not the ONLY place selling oil. Smart move USA
Yesuf Mohammed
Yesuf Mohammed Mar 02, 2023 12:36PM ET
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Lol
Joas Salas
Joas Salas Mar 02, 2023 12:28PM ET
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Excellent way to create a void that will be filled with Russian oil...
Timothy Iacobacci
Timothy Iacobacci Mar 02, 2023 10:34AM ET
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Biden sold oil from the SPR to China. Another 10 percent for the big guy
Jean Staples
Jean Staples Mar 02, 2023 9:37AM ET
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Biden made a huge mistake releasing oil from the strategic petroleum reserves. Typical government blunder in that no monitoring was done. This was supposed to help lower the price of gas in the United States, but that certainly did not happen. The big question is is Biden still releasing oil from our strategic reserves. Lord help us if there is a global crisis and we find That our country does not have enough oil for transportation resources, delivery of goods etc., to go across our nation. Huge mistake on the part of the US government!
Sherman Shields
Sherman Shields Mar 02, 2023 9:37AM ET
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Sooo Negative
Brad Albright
Brad Albright Mar 02, 2023 9:37AM ET
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You live in a world of make believe. Of course the SPR release helped constrain gas prices. Of course, there was monitoring, thus the amounts reported in this article.
prinx onuoha
prinx onuoha Mar 02, 2023 9:22AM ET
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limit oil supply just to increase the dollar strength... who is actually behind this balloon idea
B L
B L Mar 02, 2023 8:58AM ET
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Does America understand that oil is a fungible commodity?
 
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