Crude oil could be the next casualty in US-China trade war

Global Business

Crude oil could be the next casualty in US-China trade war

China has threatened to impose a 25 percent tariff on U.S. oil imports if the U.S. goes ahead with its plan to slap tariffs on more Chinese goods. This comes at a time when the U.S. has been increasing oil shipments to China.

CGTN’s Karina Huber has more.

In 2016, the United States began exporting oil for the first time in 40 years. Two years later, China is one of its biggest purchasers.

In the first four months of the year, China bought about 330,000 barrels of U.S. oil per day. That’s around a billion dollars-worth per month and represents 20 percent of U.S. oil exports. In June, China surpassed Canada to become the biggest buyer.

Experts said U.S. output is expected to increase and China will likely consume even more U.S. oil.

“The U.S. predominantly exports light sweet crude, which essentially is high quality, low-sulfur crude. That is something that is in demand in China. Their appetite is only going to grow for that, particularly in the North, into those independent refiners.” said Matt Smith, Director of Commodity Research, ClipperData.

Chinese buyers have been willing to ship U.S. crude halfway around the world, because it is trading at a discount relative to other global benchmarks like Brent crude.

But If China were to impose a 25 percent tariff on the import of U.S. oil, as it has threatened, that discount would disappear and experts say the market would dry up.

“Demand in China would drop overnight to zero, I would expect. Nobody is going to pay an extra 17, 18 dollars a barrel for crude just because it’s from the U.S.” said Sandy Fielden, Director of Research for Commodities and Energy, Morningstar.

Chinese buyers could source light crude from other countries like Nigeria or Russia. Experts are mixed on the impact tariffs might have on U.S. producers.

“The world crude oil demand isn’t going to change because of China’s buying policy. So, there will be a home for it,” said Fielden, “Effectively, if China buys from someone else, then the people that were previously buying from them will need to get it from the U.S. In other words, it balances out.”

India has already become a bigger buyer of U.S. crude. But, even if that market grows as Fielden expects, other analysts say U.S. oil producers are unlikely to escape unscathed from a U.S.-China trade war.