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Column: China's splurge on U.S., Brazilian crude oil is ending

LAUNCESTON, Australia (Reuters) - Much of the surge in China’s imports of crude oil in recent months has been provided by the United States and Brazil, but the volumes from these two exporters are set to tail off in coming months.

A general view of the tanks of Brazil's state-run Petrobras oil company in Brasilia, Brazil March 9, 2020. REUTERS/Adriano Machado

Chinese customs data showed that China imported 3.67 million tonnes from the United States in July, equivalent to about 864,225 barrels per day, and 139% higher than the same month in 2019.

July’s imports from the United States were a record high, but this likely will be broken by August’s purchases, with Refinitiv Oil Research estimating imports of about 900,000 bpd.

It may be tempting to view this as Beijing finally making an effort to meet its obligations to dramatically boost its imports of U.S. energy under the Phase 1 trade deal signed in January.

But the far more plausible explanation is that China’s refiners took advantage of the slump in crude prices during a brief price war in April between top exporters Saudi Arabia and Russia to stock up on cheap oil.

Cargoes bought in April would most likely have been loaded in May, and given the average voyage time of at least 45 days from the U.S. Gulf Coast to China, the bulk of the vessels would have arrived in July and in August.

Refinitiv data shows seven tankers are currently awaiting discharge at Chinese ports, with three more en route and expected to arrive by the end of the month. Sixteen cargoes have already been offloaded this month.

It’s possible that some of the cargoes en route and awaiting discharge may be pushed into September when assessed by Chinese customs, which may boost that month’s arrivals from the United States.

But even if there are some delays with processing August cargoes, it’s likely that September will see a dramatic drop off in imports from the United States, with Refinitiv data showing only eight ships carrying a total of 10.85 million barrels scheduled to arrive.

This would drop September’s imports from the United States to around 360,000 bpd, and the risk is that October’s arrivals are even lower, given the window for cargoes to leave the United States and reach China by Oct. 31 is closing.

So far, only one tanker is underway for an October delivery with almost 2 million barrels on board, while another similar-sized cargo is currently under negotiation.

The departure of cargoes is also likely to be disrupted by Hurricane Laura, a massive Category 4 hurricane expected to hit the coast along Texas and Louisiana, where much of the U.S. crude export infrastructure is located.

There are reports of renewed Chinese interest in buying U.S. crude for November delivery, however, this seems to be more related to price differentials than any real attempt to boost purchases in order to try and get near the trade deal targets.

BRAZIL FADES

Like the United States, Brazil was also a beneficiary of Chinese buying during the brief price war, with China’s imports from the Latin American producer expected to hit 1.12 million bpd this month, according to Refinitiv.

This would be up from 1.09 million bpd in July, which was just below 1.22 million bpd from June.

China’s imports from Brazil have ramped up in the June to August period, most likely as refiners sought to replace barrels from the Middle East that became scarcer as part of the output restrictions agreed by the OPEC+ group of producers.

However, China’s imports from Brazil are likely to taper in September, with Refinitiv showing 15 vessels carrying 23.8 million barrels, equivalent to about 793,000 bpd, scheduled to arrive.

As yet, no cargoes from Brazil to China have been assessed for October, but given the voyage time of around 40 days there is still a window of about 20 days for shipments to be arranged.

The tailing off of imports from the United States and Brazil will give China’s more traditional suppliers a chance to boost market share, especially after the easing of output restrictions by the OPEC+ group.

Saudi Arabia fell to third place behind Russia and Iraq in shipments to China in July, with official data showing imports of just 1.26 million bpd, down 23.4% from the same month a year earlier.

China’s imports from Saudi Arabia look set to remain subdued in August with Refinitiv estimating 1.37 million bpd, but the chances are they will accelerate from September onwards.

The opinions expressed here are those of the author, a columnist for Reuters.

Editing by Richard Pullin

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