China’s main crude importer, Sinopec, says it is relieved that Beijing decided to not put US crude on the list of items subject to a tariff in the escalating trade war with the Trump administration. Visual China photo.
Sinopec lobbied Chinese government to keep US crude off tariff list
Chinese oil and gas company Sinopec along with other state oil companies are relieved that Beijing opted to not put US crude on a list of items subject to tariffs in the escalating trade war with the Trump administration.
Reuters sources say a strong lobbying effort from Sinopec’s parent company, Sinopec Group, was a major factor in the decision.
Sinopec declined to comment.
The move shows the importance of the United States as a key global crude producer and an alternative supply source for China, which is looking to diversify its crude purchases.
Recently, Sinopec suspended new bookings of US crude until at least October over tariff concerns, which, if put in place, would boost the price of oil imported from the US by 25 per cent.
“The US will be the single largest source of new oil supplies outside OPEC. It’s in China’s interest to diversify supplies,” a second source, a state oil trading manager, told Reuters.
Following the decision, Sinopec can now bring in cargoes of US crude loaded in June and July and resume new bookings, according to Reuters’ sources.
Looming tariffs on US crude only highlighted Beijing’s dependency on imported oil.
“The issue for the Chinese is that any tariff on US exports, (including) oil, will likely hurt their economy disproportionately because they have to import,” Kenneth Medlock, senior director of the Center for Energy Studies at Rice University’s Baker Institute for Public Policy told Reuters.
“US exports will find a home regardless of how the global supply deck is reshuffled,” Medlock said.
Crude oil was taken off the list, however, refined fuels, including propane, kerosene, diesel and lubricants will be subject to an additional 25 per cent tax beginning on Aug. 23.
Of these items, the tariff on propane will be substantial with China’s imports hitting about $2 billion last year.
By dropping crude from the tariff list, Beijing has more room to maneuver in its trade negotiations with the Trump administration, especially if it stops purchasing Iranian crude when the US sanctions begin in November.
China currently imports about 650,000 b/d of Iranian crude, worth about $15 billion per year. Sinopec and China National Petroleum Corp have invested billions of dollars in Iran’s oil industry and have been importing their equity production.
Analysts warn, however, that if the US – China trade war continues and Trump carries through on his threat to slap tariffs on $200 billion in Chinese goods, Beijing could revisit tariffs on US crude.
“China’s decision to drop crude may be an attempt to keep US crude as leverage for potential negotiations,” Reuters reports Michal Meidan of Energy Aspect wrote in a client note on Thursday.
The move could also give Chinese crude buyers more time to bring in US oil that they have already paid for, said Meidan. In June, loadings of Chinese purchases of US crude oil hit a record high of 553,000 barrels per day (b/d), worth nearly $1 billion.