Crude oil's tight supply-demand balance should shield U.S. exporters' bottom lines once Chinese government tariffs on U.S. products including shale oil take effect in July, commodity market experts said.
The recent decision by China, a top recipient of U.S. oil, to issue 25% tariffs on 545 U.S. products could severely disrupt this trade in an oversupplied world. But OPEC's ongoing crude production cuts combined with price spreads between reference benchmarks for buyers and sellers mean that Chinese buyers are likely to be on the losing end, Rice University's Ken Medlock said.
"When you have a tariff, it actually has the biggest impact along … the dimension that responds least to price, so that's usually at the consuming end when you talk about energy," Medlock, senior director of Rice's Center for Energy Studies, said in an interview.
For U.S. crude exporters, Medlock continued, "as long as this trade dispute remains bilateral, then you'll just have a reshuffling of the deck."
Morningstar Inc.'s commodities and energy research director, Sandy Fielden, concurred. "The Chinese are still going to have to buy from someone else … and the U.S. crude will find another home where it's basically going to be priced to sell," Fielden said.
Since Congress lifted the crude export ban at the end of 2015, China imported more than 121 million barrels of oil from the U.S. as of March, making it the top destination for U.S. oil after Canada.
The state-owned energy giant China Petroleum & Chemical Corp., or Sinopec, could suffer one of the first major casualties on the consumer side. S&P Global Platts on June 17 reported that Sinopec trading arm Unipec is scheduled to receive 16 million barrels of U.S. crude during July and August.
"This will have a big impact on Unipec's business and feedstock supplies for Sinopec refineries," a Beijing-based source told Platts.
The tariff announcement from China followed the Trump administration's unveiling of two lists of tariffs June 15 that target Chinese imports valued at $50 billion.
LNG, meanwhile, was not listed as one of the U.S. energy products China will issue tariffs for beginning July 6, which Nicholas Browne, Wood Mackenzie's director of Asian gas and LNG research, said was not surprising.
"For flexible U.S. volumes, the introduction of tariffs would have posed a significant challenge for Chinese buyers as they seek to meet surging demand," he said in a June 18 statement. "It would also have created logistical headaches for suppliers to optimize their portfolios to ensure they could meet Chinese demand while redirecting U.S. LNG to other markets."
China ramped up its imports of U.S. gas in 2017, and Cheniere Energy Inc. in February signed two LNG sales and purchase agreements with China National Petroleum Corp. guaranteeing supplies through 2043. In April, China imported 17.5 Bcf of U.S. LNG.
S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.