China refineries processed a record amount of crude oil last month, and now they are looking to the U.S. to find crude.

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TickerSecurityLastChangeChange %OILBARCLAYS BANK PLC IPATH ETN (18/04/41) CRUDE12.58-0.18-1.45%

China is looking to book oil tankers for August and September to ship at least 20 million barrels of U.S. crude, according to Reuters. The move comes as there is increasing pressure on the Chinese to fulfill their commitments to the Phase One U.S. China trade deal as they lag in the purchase of many U.S. commodities. The move by China to ramp up oil purchases comes right ahead of the review of the U.S.-China trade deal, initially slated for Saturday, which was delayed due to scheduling issues with no new date agreed upon.

TRUMP PLEDGES TAX CREDITS FOR US FIRMS THAT BRING JOBS BACK FROM CHINA

The move by China by U.S. crude is a positive sign for the fate of global trade. Still, the irony is that it may not immediately help U.S. oil producers and may make our own oil inventories very tight. It was not too long ago when U.S. energy producers were begging China to buy our abundant supply, but now not so much.

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U.S. oil inventories are starting to fall. In part, because many U.S. oil producers have been squeezed out of business by the recent coronavirus oil price crash, or existing companies lack the capital to increase production. Since the COVID-19 pandemic, U.S. oil production has seen a drop of well over 2 million barrels per day. That is the most significant drop since they have been keeping records. The OPEC Plus production cuts have also taken their toll on U.S. oil supply leading to the biggest three-week drop in Gulf Coast crude supplies in history. That means that U.S. oil supplies were already falling, and the major purchase of oil by China may cause a spike in U.S. energy prices when we get closer to the winter heating season.

President Trump discusses America seizing Iranian oil tankers. Video

US SEIZURE OF IRAN FUEL BOUND FOR VENEZUELA WAS LARGEST CONFISCATION OF ITS KIND EVER, DOJ CONFIRMS

Yet a move by the Trump administration may ease that short squeeze after the administration successfully seized Iranian fuel from four tankers sailing to Venezuela, increasing its “maximum pressure campaign” against Tehran, a senior U.S. official confirmed for Fox News on Thursday evening. Iran and Venezuela have tried to outmaneuver sanctions that the U.S. has placed on both countries by forming an oil partnership. The confiscated cargo, first reported by the Wall Street Journal on Thursday, was a direct violation of U.S. sanctions. A senior official clarified that the tankers were not seized, but the oil is now in U.S. possession.

It’s probably a good thing that the U.S. seized that oil because now we can turn around and sell some of it to China.

That extra oil should come in handy as our supply tightens.

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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 [email protected].

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