Chinese oil traders and refiners no longer want to sign long-term supply agreements with U.S. producers, said the chief executive of Enterprise Products Partners as quoted by Reuters, amid the deepening trade rout between Washington and Beijing.
The latest escalation in the rout followed president Trump’s complaint that the trade talks with China were going too slowly and his threat—that he went through with—to increase tariffs from 10 percent to 25 percent on US$200 billion worth of Chinese goods. The retaliatory move came promptly, with China raising tariffs on U.S. liquefied natural gas.
U.S. oil has so far been spared tariffs, but this does not seem to matter to Chinese buyers. Last year, they stopped buying U.S. crude despite a three-month truce in the middle of the year.
“Chinese companies have little incentive to buy U.S. crude due to the wide availability of crude supplies today from Iran and Russia,” Seng Yick Tee from consultancy SIA Energy told Reuters at the time. Yet trade tensions were not helping, either. With the constant threat of more tariffs, refiners were reluctant to change their buying habits.
This reluctance will persist, it seems, as just a few weeks after the trade deal seemed all but sealed, the situation deteriorated rapidly and will likely deteriorate further after Trump targeted telecoms giant Huawei’s international expansion—a move that is highly unlikely to sit well with Beijing.
Last year, between January and June, China was the biggest buyer of U.S. oil at a daily rate of 377,000 barrels. This has dropped to 41,600 bpd for the six months to February this year, although China’s total imports continued rising steadily.
In April, these averaged 10.64 million bpd, which came as a surprise to analysts as the 11-percent year-on-year increase came amid refinery maintenance activities and low local fuel demand. Imports for the first four months of the year averaged 10.03 million bpd, an 8.9-percent increase on the year.
By Irina Slav for Oilprice.com
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Even without the trade war, China wouldn’t have stopped Iranian crude because it doesn’t recognize US sanctions against Iran. Now with the trade war escalating, China will do its utmost to undermine US sanctions against Iran.
Iran is an important oil and trade partner with China and also a crucial element in China’s Road and Belt initiative.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London