Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

China move to drop crude off tariff list a relief for Sinopec

Published 08/10/2018, 02:12 AM
Updated 08/10/2018, 02:12 AM
© Reuters. FILE PHOTO: Oil tanker unloads crude oil at a crude oil terminal in Zhoushan

© Reuters. FILE PHOTO: Oil tanker unloads crude oil at a crude oil terminal in Zhoushan

By Chen Aizhu

BEIJING (Reuters) - China's decision to remove crude oil from its latest tariff list in an escalating trade war with the United States was a relief to state oil firms prompted by a strong lobbying effort by main importer the Sinopec Group, Beijing-based oil sources said.

Dropping crude oil from the final tariff list on $16 billion in U.S. goods announced late on Wednesday underscores the growing importance of the United States as a key global producer and critical alternative supply source for top importer China, which is seeking to diversify its oil purchases.

Removing crude imports, worth roughly $8 billion annually based on Sinopec's earlier forecast of 300,000 barrels per day (bpd) for 2018, also gives Beijing room to maneuver in future negotiations with Washington, especially as it may soon lose some Iranian oil shipments due to reimposed U.S. sanctions.

"Sinopec did a lot of lobbying work with the government," said one person with direct knowledge of the state refiner's efforts to sway the policy decision of various agencies such as the Ministry of Finance and the Ministry of Commerce.

Sinopec (SS:600028) declined to comment.

The revision came after Sinopec - Asia's largest refiner and biggest buyer of U.S. oil - suspended new bookings until at least October over worries that a 25 percent tariff would prohibit it from finding buyers in China.

"The U.S. will be the single largest source of new oil supplies outside OPEC. It's in China's interest to diversify supplies," said a second source, a state oil trading manager.

The move could encourage Sinopec to bring in cargoes loaded in June and July, and resume new bookings, the sources said, declining to be named due to the sensitive nature of the topic.

U.S. IMPORTS COULD OFFSET LOST IRAN OIL

Some analysts say Beijing is bowing to China's heavy reliance on imported crude oil.

"The issue for the Chinese is that any tariff on U.S. exports, (including) oil, will likely hurt their economy disproportionately because they have to import," said Kenneth Medlock, senior director of the Center for Energy Studies at Rice University's Baker Institute for Public Policy.

"U.S. exports will find a home regardless of how the global supply deck is reshuffled," Medlock said.

Although crude oil has been dropped off the list, refined fuels including propane, kerosene, diesel and lubricants are among the products due to be levied an additional 25 percent tax from August 23.

Propane will be the main item hit, with China's imports amounting to some $2 billion last year. Chinese imports of other refined fuels were negligible.

China's U.S. crude oil purchases shot to a record 553,000 bpd for June loadings, worth nearly $1 billion.

Dropping oil from the list could also be seen as a good-will concession that could help China win a waiver to keep buying Iranian oil even as U.S. President Donald Trump threatens to choke off Tehran's oil exports completely, analysts said.

China now takes in around 650,000 bpd of Iranian oil, trade worth roughly $15 billion a year. State oil giants China National Petroleum Corp (CNPC) [CNPET.UL] and Sinopec have invested billions of dollars in Iranian oil fields, and have been importing their equity production.

But if the U.S.-China trade war is not scaled back, and Trump carries through threats of tariffs on $200 billion in Chinese goods, Beijing could put U.S. crude back on the list, the sources said.

"China's decision to drop crude may be an attempt to keep U.S. crude as leverage for potential negotiations," Michal Meidan of Energy Aspect wrote in a client note on Thursday.

© Reuters. FILE PHOTO: Oil tanker unloads crude oil at a crude oil terminal in Zhoushan

But it could also just give Chinese buyers more time to bring in U.S. crude they have already bought, she said.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.