Markets watches as China oil imports outstrip U.S.

When Number 2 is a Good Thing

China's rise as a dominant buyer of Middle East oil presents a conundrum for it and the U.S. For China, it means its economy depends in part on oil from a region dominated by the U.S. military. When tankers depart Persian Gulf terminals for China, they rely in significant part on the U.S. Fifth Fleet policing the area. For Washington, China's oil thirst means justifying military spending that benefits a country many Americans see as a strategic rival and that frequently doesn't side with the U.S. on foreign policy.

Signs of tension are surfacing. Beijing has asked for assurances that Washington will maintain security in the Persian Gulf region, as China doesn't have the military power to do the job itself, according to people familiar with recent discussions between the countries. In meetings since at least last year, Chinese officials have sought to ensure U.S. commitment to the region isn't wavering, particularly as the Obama administration has pledged to rebalance some of its strategic focus toward East Asia, said people familiar with those discussions.

In return, U.S. officials have pressed China for greater support on issues such as its foreign policy regarding Syria and Iran. U.S. officials in private discussions have pressed China to lower its crude imports from Iran, for example, according to a person with knowledge of the discussions. Meanwhile, China faces criticism from senior U.S. leaders who complain that Beijing has obstructed tough action against the Syrian regime at the United Nations. Current and former U.S. officials have told the Chinese that stable energy flows from the Middle East will need greater cooperation from Beijing going forward, said the people familiar with the discussions.

China's Foreign Ministry, in a statement responding to questions for this article, said China's oil trade with the Middle East was "mutually beneficial and in accordance with international business norms," adding that China wanted political inclusiveness, economic prosperity, and peace and stability for the region.

At an April Brookings Institution conference in Washington, D.C., when the former head of China's National Energy Administration, Zhang Guobao, was asked whether China could assume a greater role in protecting the region's shipping lanes, he responded: "Why don't the Americans do the job for now."  Why not?

Natural gas continues its bullish ways. Nat gas demand is rising as well as production as companies start to take advantage of the Nat gas miracle. Zach's Equity Research reports that " Leading freight carrier United Parcel Service, Inc. announced an investment of $50 million for the construction of nine additional liquefied natural gas fueling stations. The company had already announced construction of four such fueling stations in Apr 2013. UPS expects these fueling stations to begin operations within 2014."

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About the Author
Phil Flynn

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. Learn even more on our website at www.pricegroup.com.

 

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