The US is pushing back its deadline to raise tariffs on $200 billion of Chinese imports, a move likely to boost crude oil and LNG trade flows, especially if trade tensions ease in the longer term, traders and other market participants said Monday.
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The US was scheduled to raise the 10% tariff on Chinese goods to 25% on March 1 if trade negotiations with Beijing did not yield an agreement, which would have triggered retaliatory tariffs by China impacting US crude and LNG exports to the country.
US President Donald Trump tweeted Sunday that there has been "substantial progress" in talks with China "on important structural issues including intellectual property protection, technology transfer, agriculture, services, currency and many other issues."
Trump added, "As a result of these very productive talks, I will be delaying the US increase in tariffs now scheduled for March 1."
The US president said an agreement could be reached at a summit with Chinese President Xi Jinping at his Mar-a-Lago resort.
Neither Trump nor Chinese state media have specified the duration of the extension.
On Monday, state-backed news agency Xinhua said the two countries had made "substantial progress on specific issues concerning technology transfer, intellectual property protection, non-tariff barriers, services and agriculture sectors, as well as exchange rates during the seventh high-level trade talks."
Last week, China's Vice Premier Liu He led a trade delegation to Washington and held talks with US Trade Representative Robert Lighthizer and Trump.
While many market participants are looking forward to a trade agreement, there remains uncertainty over a lack of details and wider unresolved differences between Beijing and Washington.
CRUDE, LNG ABRITRAGE
With a weak Asian LNG market and a 10% retaliatory tariff already placed on US LNG, it will likely be easier for US to ramp up exports of crude over LNG to China.
Asian LNG prices are too low to support arbitrage flows from the US, although market participants indicated optimism about the final outcome of the trade talks. The Platts JKM for April delivery cargoes was assessed at $6.225/MMBtu Friday.
China received only two LNG cargoes from the US in January, on board the Hoegh Giant and Clan Vision, and no US cargoes were delivered in December, according to S&P Global Platts vessel tracking software cFlow. At least one US LNG cargo was delivered to China November, on the Ribera Del Duero Knutsen, from Cheniere Energy's Sabine Pass LNG.
US crude exports to Asia are set to swell over March and April, aided by a drop in freight rates and arbitrage economics. Various flagship North American export grades have been trading at a discount to comparable light and medium Asian and Persian Gulf grades, Platts reported earlier this month.
"We expect more US crude to come to China as a result of Beijing's promise to increase US energy imports," a Beijing-based trader said.
Around 17 VLCCs were fixed to load crude from the US Gulf Coast to the East for February-loading cargoes, shipping reports showed, with many more likely booked outside of reported fixtures. Comparatively, there were 16 VLCC cargoes in January and only seven in December, according to cFlow and shipping reports.
A Suezmax-sized vessel, Arctic, loaded 1.09 million barrels of crude from the Pacific Lightering area in the US West Coast and sailed December 25, discharging at Zhoushan in eastern China on January 15, cFlow data showed.
Northeast Asia and India typically absorb the bulk of US crude deliveries to Asia, though small volumes occasionally go to Southeast Asian countries such as Thailand, Malaysia and Singapore.
China took no US crude in December due to trade tensions, but total supplies of US crude in 2018 posted a sharp 60.4% increase on the year to 247,624 b/d.
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