U.S. sour crude oil sellers have reduced their pricing for Asian customers, fearing that demand for U.S. oil may drop as China threatens to slap tariffs on American energy imports and as Middle Eastern producers may boost supply in line with OPEC’s agreement to increase production, Reuters reported, citing trading sources.
Sellers of U.S. oil “are worried about the trade war and they panicked. China’s buying has slowed as most of the refineries are pending (purchases),” a buyer with a North Asian refiner told Reuters.
The renewed U.S.-Chinese trade tit-for-tat threatens to limit U.S. crude oil exports to China that have been gaining pace in recent months and eating into OPEC’s share in the market—a market that is setting the pace of global oil demand growth. The heightened trade tension between the United States and China over the past weeks resulted in China threatening to slap a 25-percent import tariff on crude oil and refined oil product imports from the United States.
In case of reduced U.S. oil exports to China, the biggest winner of an oil trade war will be OPEC—the supplier that has seen its market share diminished by U.S. oil. The cartel would be the biggest beneficiary of possible Chinese tariffs on U.S. oil imports, as these could help it regain market share, OPEC sources and industry officials tell Reuters. Related: The Energy Companies Fighting For EV Charging Dominance
Sellers of U.S. sour crude grades have lowered prices also because OPEC and allies agreed in June to boost production by an unspecified number, which Saudi Arabia interprets as an increase of up to 1 million bpd.
Currently, the U.S. Mars grade for Asian customers for October delivery is offered at US$1.00-1.50 a barrel premium over the Dubai benchmark on a cost-and-freight basis—down by at least US$0.50 per barrel from the Mars grade prices for September delivery, according to Reuters’ sources. The current Mars pricing is on par with the Middle Eastern sour crude Oman, the sources said.
By Tsvetana Paraskova for Oilprice.com
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The mutual tariff retaliations between China and the United States show that China will not run from a fight with the United States. China has formidable weapons in its arsenal not least among them the threat to offload its holdings of US Treasury bills estimated at $1.3 trillion and also the petro-yuan which is starting to gain momentum and weight in the global oil market at the expense of the petrodollar.
President Trump will realize soon that China will not bend the knee before him and stop his trade war against it. The world’s two biggest economies need each other not only for their mutual benefits but for the whole world’s benefit as well.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London