The trade war finally caught up with US
crude oil exports to China, but this doesn’t mean that US crude flows to
East-Asia will dry up all of a sudden.
It’s been a year
since the China-US trade war began, and up until this last week, China had
refrained from slapping import tariffs on US crude oil, even as it announced
other measures in retaliation to US import tariffs on Chinese goods. Those days
are over.
Last week, the
trade war finally caught up with US crude oil exports to China. What does this
mean for the US oil industry?
For a year now,
Chinese refiners and traders have held their collective breaths, scared for the
day when the government would finally unleash tariffs on US crude oil imports.
Now they’ll have the chance to test their strategies to hedge the risk of
buying US oil amid a tariff that caught China-bound tankers out at sea.
China announced
on Friday that it would be imposing tariffs on US$75 billion worth of US goods,
including crude oil, in two batches beginning September 1 and December 15.
The 5-percent
tariff on crude oil — effective this coming Sunday — has caught several tankers
carrying US crude oil en route to China. Some of those tankers have already
docked or will have arrived by September 1 at Chinese ports, but others won’t
make the voyage in time, S&P Global Platts reports, citing ship-tracking
data.
For a year now,
Chinese buyers have been reluctant to buy US crude oil, fearing that tariffs
may come any moment, disrupting their plans and making their oil more
expensive. Many of those who have continued to buy oil from America have been
hedging risks by having the option for alternative port destinations of the cargoes.
Last month,
Chinese imports of US crude were estimated to have been at their highest level
since the trade war began, according to customs data cited by Platts. China’s
imports for August could also be high because some were rushing to get to China
under the wire, before the tariff came into force. Yet, considering that the
Chinese announcement came just a week before August ends, many oil tankers
won’t make the more-than-55-day voyage in time to avoid tariffs.
Amid the trade
war, China’s largest refiner Sinopec is now said to be drafting contingency
plans for its US imports since it has a term deal to buy up to four very large
crude carrier (VLCC) cargoes — each capable of carrying 2 million barrels of
oil — every month. According to Reuters’ sources, the tariff would make US
crude $3 a barrel more expensive for Chinese buyers.
Sinopec plans to
apply for a kind of tax exemption for its imports of US crude oil, sources told
Reuters. The Chinese refiner is also considering storing oil from the US in
bonded storage, such that hasn’t cleared customs in China yet, or sending it on
to other destinations, according to one of the sources to avoid the tariff
altogether.
After somewhat
higher imports in July and possibly August, Chinese imports of US crude are
expected to crash again after September starts and the tariff kicks in,
analysts say, though some expect that China will continue to import — albeit at
a very low rate — American oil.
According to JLC
International, China will likely stop importing US crude oil as of next month.
“As
China stops importing its crude, the US will probably have to find more buyers
for its still increasing oil production, but finding another market the size of
China could prove challenging,” JLC
International analysts said earlier this week.
Yet, total
American crude sales to the Asian market will not be negatively impacted
because other Asian countries have started to show increased appetite for US
grades that Chinese refiners wouldn’t want, S&P Global Platts reported
earlier this week.
According to
ESAI Energy analysts, most private Chinese refiners will shun US oil, but some
state-owned traders could keep importing US oil at a pace of around 150,000
bpd–200,000 bpd for the rest of this year, as they could seek options such as
tariff waivers, storing the oil in bonded tanks, or diverting cargos to other
Asian countries.
“Overall,
we expect US exports of crude to Asia to grow from 1.2 million b/d in the first
half of the year to about 1.3 million b/d for the balance of 2019, regardless
of China’s tariff on US Crude,”
ESAI Energy says.
Source: RT