Thursday, September 13, 2018
On Aug. 23 China implemented tariffs on a second tranche of U.S. goods, targeting oil products such as propane and butane, and coal for the first time, in retaliation to U.S. tariffs effective the same day and paving the way for crude oil and LNG to be hit next, reports S&P Global Platts. 
Energy commodities including propane, butane, naphtha, jet fuel, and coal are on the second list of $16 billion worth of U.S. products that attract 25% additional tariffs from Aug. 23, according to China’s Ministry of Commerce. The latest tariffs came in the midst of trade talks between the U.S. and China in Washington, but market participants did not expect talks to yield any firm outcomes to ease tensions.
“Marketers have been under pressure in recent weeks as tensions surrounding the trade conflict have intensified,” said Australia’s ANZ Research in a note to clients Aug. 23. “Therefore, some have seen this week’s talks between the U.S. and China as a potential circuit breaker in the ongoing tit-for-tat tariffs. However, with the Chinese delegation containing no senior officials, we think investors should be disappointed.”
This leaves the door wide open for tariffs on two major U.S. energy commodities exported to China in the next round—crude oil and LNG. Crude oil was pulled from the current round when the final list was announced, but there is no indication it is completely off the table. LNG also remains on the drawing board for the next round.
The first tranche of tariffs implemented July 6, 2018 saw China retaliate by imposing a 25% tariff on $34 billion worth of U.S. imports of food products and agricultural commodities such as soybeans and motor cars. The upcoming third round of U.S. tariffs is on $200 billion worth of goods, at a lower rate of 10% compared to 25% for previous levies. The Office of the U.S. Trade Representative had set a date of Aug. 30 for any final comments in the consultation process, and implementation typically occurs within a few weeks.
Meanwhile, Chinese buyers of U.S. energy commodities have already been working to reconfigure purchases to avoid the tariffs, even for crude oil and LNG that have not been targeted yet. With shifting political rhetoric, uncertainty has prevailed in the market since Beijing first threatened 25% retaliatory tariffs on U.S. oil products in early April. This raised the supply of U.S. energy commodities in the market and left non-U.S. supplies, which Chinese buyers are looking for, relatively tighter.
Numbers show the steady decline in U.S.-China petroleum flows. The U.S. exported 141,000 bbld of petroleum products to China in May, a 10-month low, according to U.S. Energy Information Administration data. These exports had averaged 229,000 bbld in 2017 and 181,000 bbld in 2016. U.S. LPG exports to China fell to an 11-month low of 52,000 bbld in May. U.S. LPG exports averaged 147,000 bbld in 2017 and 115,000 bbld in 2016.
Meanwhile, China’s crude oil imports from the U.S. fell sharply in July and August from June as state-owned Sinopec, the world’s biggest refiner by capacity, was forced to reverse plans to lift significantly higher volumes of U.S. crude this year. China received 14.1 MMbbl of U.S. crude in June, which was a historical high, but volumes subsequently fell to 9.6 MMbbl in July, and August arrivals in China are expected at 8.5 MMbbl.
(SOURCE: The Weekly Propane Newsletter, September 17, 2018. Click Subscriptions tab above to subscribe.)
Energy commodities including propane, butane, naphtha, jet fuel, and coal are on the second list of $16 billion worth of U.S. products that attract 25% additional tariffs from Aug. 23, according to China’s Ministry of Commerce. The latest tariffs came in the midst of trade talks between the U.S. and China in Washington, but market participants did not expect talks to yield any firm outcomes to ease tensions.
“Marketers have been under pressure in recent weeks as tensions surrounding the trade conflict have intensified,” said Australia’s ANZ Research in a note to clients Aug. 23. “Therefore, some have seen this week’s talks between the U.S. and China as a potential circuit breaker in the ongoing tit-for-tat tariffs. However, with the Chinese delegation containing no senior officials, we think investors should be disappointed.”
This leaves the door wide open for tariffs on two major U.S. energy commodities exported to China in the next round—crude oil and LNG. Crude oil was pulled from the current round when the final list was announced, but there is no indication it is completely off the table. LNG also remains on the drawing board for the next round.
The first tranche of tariffs implemented July 6, 2018 saw China retaliate by imposing a 25% tariff on $34 billion worth of U.S. imports of food products and agricultural commodities such as soybeans and motor cars. The upcoming third round of U.S. tariffs is on $200 billion worth of goods, at a lower rate of 10% compared to 25% for previous levies. The Office of the U.S. Trade Representative had set a date of Aug. 30 for any final comments in the consultation process, and implementation typically occurs within a few weeks.
Meanwhile, Chinese buyers of U.S. energy commodities have already been working to reconfigure purchases to avoid the tariffs, even for crude oil and LNG that have not been targeted yet. With shifting political rhetoric, uncertainty has prevailed in the market since Beijing first threatened 25% retaliatory tariffs on U.S. oil products in early April. This raised the supply of U.S. energy commodities in the market and left non-U.S. supplies, which Chinese buyers are looking for, relatively tighter.
Numbers show the steady decline in U.S.-China petroleum flows. The U.S. exported 141,000 bbld of petroleum products to China in May, a 10-month low, according to U.S. Energy Information Administration data. These exports had averaged 229,000 bbld in 2017 and 181,000 bbld in 2016. U.S. LPG exports to China fell to an 11-month low of 52,000 bbld in May. U.S. LPG exports averaged 147,000 bbld in 2017 and 115,000 bbld in 2016.
Meanwhile, China’s crude oil imports from the U.S. fell sharply in July and August from June as state-owned Sinopec, the world’s biggest refiner by capacity, was forced to reverse plans to lift significantly higher volumes of U.S. crude this year. China received 14.1 MMbbl of U.S. crude in June, which was a historical high, but volumes subsequently fell to 9.6 MMbbl in July, and August arrivals in China are expected at 8.5 MMbbl.
(SOURCE: The Weekly Propane Newsletter, September 17, 2018. Click Subscriptions tab above to subscribe.)
