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Oil

Oil declines as China plans tariffs on imported US crude, escalating trade fight

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Oil declines as China plans tariffs on imported US crude, escalating trade fight

New York — Oil settled lower Friday amid renewed concerns that spiraling US-China trade tensions could blunt global energy demand growth.

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NYMEX October WTI settled down $1.18 at $54.17/b, and ICE October Brent was 58 cents lower on the day at $59.34/b.

Oil futures plunged in early morning trading after China announced plans to levy a 5% tariff on US crude imports from September 1, part of a new round of tariffs on $75 billion worth of US goods imports that will be implemented in two batches from September 1 and December 15.

The State Council's Tariff Commission said in a statement Friday on the Ministry of Finance website that the tariffs are in retaliation for the US government's 10% tariff on around $300 billion worth of Chinese goods announced on August 15.

Related podcast: Commodity markets settle in for the long haul in US-China trade tension

Related story: China to impose 5% extra tariff on US butane, propane: State Council

Related story: China imposes 5%-10% additional import tax on four US soybean varieties

Oil futures, which were climbing off session lows reached in the immediate wake of the tariff announcement, again turned sharply lower after US President Donald Trump criticized China's threat in a series of tweets Friday morning.

"We don't need China and, frankly, would be far ... better off without them," Trump wrote. "The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP."

Trump said he would respond to the Chinese tariffs later Friday.

NYMEX September ULSD settled down 2.57 cents at $1.8156/gal and September RBOB was 2.47 cent slower at $1.6428/gal at market close.

"[The tariff] continues to keep focus on worries that trade issues will impact global demand," Tradition Energy analyst Gene McGillian said. "It basically points toward fears that the trade crisis isn't going away."

With a landed cost of roughly $60/b, a 5% tariff implies an incremental $3 cost to importing a US barrel into China. That is enough to make US sales to China uncompetitive and will result in a return to near zero imports, according to S&P Global Platts Analytics.

But the tariff impact on US producers is unclear. China will need to buy other barrels and that will open opportunities for US sales, Platts Analytics analysts said. The implied demand for non-US crude was reflected in the relatively modest decline in Brent futures, which opened the Brent-WTI spread to $5.17/b, a 13-session high.

US crude exports to China are expected to average at 56,000 b/d in August, down from a recent peak of 279,000 b/d in May, according to data from to cFlow, Platts trade-flow software. Exports to China were as high as 679,000 b/d in June 2018, US Energy Information Administration data showed.

-- Chris van Moessner, christopher.vanmoessner@spglobal.com

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com