The latest salvos in the trade war between the U.S. and China could benefit Gulf Coast refiners as crude oil discounts shift from the U.S. inland to the Gulf Coast.

"While US crude production growth is still quite robust …, new pipeline capacity out of the Permian has helped pull in spreads," Tudor Pickering Holt & Co. analysts wrote Aug. 30. The analysts noted quarter-to-date West Texas Intermediate crude oil is trading at a roughly $5.50-per-barrel discount to Brent, down from $8.60/bbl in the second quarter, leading them to lower their average third quarter EPS outlook for U.S. refiners by 5%.
But others said trade tensions could bring local Gulf Coast crude oil discounts to Brent that benefit the region's refiners. On Aug. 23, China announced it would impose a 5% tariff on crude oil imported from the U.S.
In 2018, the country imported 228,301 bbl/d of U.S. crude oil to account for 11.8% of U.S. crude oil exports, according to the U.S. Energy Information Administration.

"The widening discount of [U.S. Gulf Coast] crudes to Brent comes on the heels of [the Chinese tariffs], but these discounts could become structural as each incremental barrel of US production looks for an export home," Jefferies analyst Jason Gammel wrote Aug. 30.
Permian crude oil production is expected to grow 4 million bbl/d by 2022, and experts predict nearly all of that crude oil will have to find a market abroad. Gammel noted "US growth could decelerate in 2020, but we still expect total liquids to be up 1.2 [million bbl/d]. … WTI prices will need to remain at more moderate levels to regulate capital spending in US shales."
