Just what impact will China’s agreement to increase the value of its energy imports from the US by $US52.4 billion ($76.2 billion) under their phase trade deal have on the oil market?

Not very much if global consultancy Wood Mackenzie is to be believed.

Its vice president macro oil Ann-Louise Hittle said that the increase in energy imports would be challenging as both liquefied natural gas (LNG) and liquefied petroleum gas would only play a minor role, leaving larger purchases of US crude oil as the primary method for China to comply with the agreement.

“In a free trade market, our proprietary Refinery Supply Model suggests that an optimal volume of US crude imports for China is only about 400,000 barrels per day (bpd) in 2021,” Hittle said.

“With the new trade deal, preliminary estimates suggest that China would need to import an average of about 1.1 million bpd of US crude over the next two years.

“China would be able to absorb these US volumes, however, as they would make up only 11 per cent of total crude imports.”

By way of comparison, China imported about 300,000bpd of US crude oil valued at close to $US5.8 billion in 2017.

However, Hittle believes that US crude prices are unlikely to be affected by the deal as they are already discounted to reflect the cost of transport to other Asian nations.

“The deal does pose a challenge for OPEC producers such as Saudi Arabia who aim to maintain market share in growing Asia oil markets, especially China,” she said.

“Assuming China is committed to the deal, discounting OPEC barrels to maintain market share will be ineffective. Instead, we would expect to see a shuffling of global crude trade, with the crude shipping sector benefiting from the growth in long-haul trade.

“OPEC will need to send volumes to other nations in Asia and to Europe, backfilling those US barrels that are now heading to China.”

Onshore oil rigs

Wood Mackenzie also believes that refining margins could be affected if China’s 5 per cent tariff on US crude imports remains in place.

Vice president refining Alan Gelder said that while this would discourage China’s independent refiners, Chinese national oil companies with large integrated refinery and petrochemical sites had the flexibility to manage shifts in product yields resulting from the increase in lighter crudes and the competitive position to absorb the cost impact.

Stockhead has identified at least 17 Australian small cap companies with exposure to the US oil sector.

Code Name Price % Return YTD Market Cap
88E 88 ENERGY LTD 0.026 18 $178.7M
ATS AUSTRALIS OIL & GAS LTD 0.09 11 $88.7M
WBE WHITEBARK ENERGY LTD 0.012 9 $36.3M
RMP RED EMPEROR RESOURCES NL 0.014 9 $6.3M
XCD XCD ENERGY LTD 0.012 0 $8.4M
SHE STONEHORSE ENERGY LTD 0.007 0 $2.8M
BYE BYRON ENERGY LTD 0.305 -2 $238.6M
PSA PETSEC ENERGY LTD 0.055 -2 $21.9M
OEL OTTO ENERGY LTD 0.036 -3 $88.6M
FPL FREMONT PETROLEUM CORP LTD 0.0065 -7 $10.8M
WEL WINCHESTER ENERGY LTD 0.05 -7 $34.4M
HE8 HELIOS ENERGY LTD 0.175 -8 $268.1M
EEG EMPIRE ENERGY GROUP LTD 0.36 -12 $102.6M
BRK BROOKSIDE ENERGY LTD 0.007 -22 $7.0M
ABL ABILENE OIL AND GAS LTD 0.002 -33 $795K
E2E EON NRG LTD 0.003 -40 $2.3M

Australis Oil & Gas (ASX:ATS) is producing oil from its Tuscaloosa Marine Shale project in Mississippi and Louisiana.

It is currently testing a more conservative choke management regime that could exchange lower early production volumes for improved medium- to long-term oil production rates.

Byron Energy (ASX:BYE) is preparing to drill the South Marsh Island 71  (SM 71) F4 well in the Gulf of Mexico to extend and prove up additional reserves for the highly productive D5 Sand.

The company’s existing F1 and F3 wells have already produced a total of 1.83 million barrels of oil from D5 Sand since production started in March 2018.

Otto Energy (ASX:OEL) has a 50 per cent interest in SM 71 but is not participating in the F4 well.

Fremont Petroleum (ASX:FPL) is seeking permits for the drilling of five wells at its Pathfinder oil field in Colorado.