SINGAPORE: China’s threat to impose duties on US oil imports will hit a business that has soared in the last two years, and which is now worth almost $1 billion per month.
In an escalating spat over the United States’ trade deficit with most of its major trading partners, including China, US President Donald Trump said last week he was pushing ahead with hefty tariffs on $50 billion of Chinese imports, starting on July 6. China said Friday it would retaliate by slapping duties on several American commodities, including oil.
Investors expect the spat to come at the expense of US oil firms, pulling down the share prices of ExxonMobil and Chevron by one to two per cent since Friday, while US crude oil prices fell by around five per cent.
“This escalation of the trade war is dangerous for oil prices,” said Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA in Singapore. “Let’s hope cooler heads prevail, but I’m not overly optimistic,” he added. The dispute between the United States and China comes at a pivotal time for oil markets.
Following a year and a half of voluntary supply cuts led by the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC), as well as the non-OPEC producer Russia, oil markets have tightened, pushing up prices.
The potential drop-off in American oil exports to China would benefit other producers, especially from OPEC and Russia.
The OPEC kingpin Saudi Arabia and Russia indicated on Friday they would loosen their supply restraint and were starting to raise exports.
A cut in Chinese purchases of US oil may also benefit Iran’s sales, which Washington is trying to curb with new sanctions it announced in May.
“The Chinese may just replace some of the American oil with Iranian crude,” said John Driscoll, director of consultancy JTD Energy Services.
“China isn’t intimidated by the threat of US sanctions. They haven’t been in the past. So in this diplomatic spat they might just replace US crude with Iranian oil. That would obviously infuriate Trump,” he said.