China tariff threat could be a boon for Gulf oil exports

China is one of the largest consumers of US shale oil. (Reuters)
Updated 18 June 2018

China tariff threat could be a boon for Gulf oil exports

  • Tariffs proposed for crude oil, coal and other energy projects.
  • China is the largest Asian customer for US crude.

LONDON: Gulf oil producers may benefit from China’s threat to impose import tariffs on US crude and other energy products, as key exporters meet to discuss production increases later this week.

China, one of the largest buyers of US crude oil surprised many late last week when it announced plans to tax such imports, as part of retaliatory measures following the decision by US President Donald Trump to impose $50 billion worth of tariffs on a variety of US goods.

The announcement comes as China looks for a different oil supply mix ahead of likely reductions in its imports from Venezuela and Iran.

Carsten Fritsch, a commodities analyst with Commerzbank, said that while China’s reduction of imports of Iranian crude should not be overestimated, the decline of production from Venezuela left the country with no choice but to seek alternative sources of oil.

“The US could could have been an alternative supplier but of course that won’t be the case if a 25 percent import tariff comes into effect,” Fritsch told Arab News.

“Some of the Arabian Gulf countries might have an advantage in plugging the gap, given the similarity of the crude types, and the same shipping lanes that would be used.”

China is currently the largest Asian customer for US crude; imports rose to 3.89 million metric tons in the first quarter of the year, compared with just 443,000 metric tons for the year ago period, according to figures from S&P Global Platts, with the US’s market share rising to 3.5 percent at the end of March.

American crude has proved competitive for China; the US benchmark WTI averaged a $1.83 per barrel discount to oil from the North Sea Forties on a delivered basis into China in May, and a 74 cents per barrel discount to Abu Dhabi’s Murban crude, according to S&P Global Platts calculations.

But China is likely to find it easier to replace US crude imports than US producers will to get new customers, according to Thomson Reuters commentator Clyde Russell.

“It’s not hard to imagine a scenario in which China encourages Saudi Arabia and Russia, the world’s top oil exporters and partners in the agreement to restrict output, to pump more crude,” said Russell yesterday.

“China would then buy the additional Saudi and Russian output, using it to replace cargoes from the US, and even from Iran, assuming the renewed US sanctions against Iran force Beijing to curtail imports.”

The prospect of restrictions on US oil come ahead of a meeting of OPEC and other oil producers in Vienna later this week, with an increase in oil production seen as increasingly likely following the eradication of oversupply and the recovery of prices.

Oil prices were up around 1.5 percent yesterday afternoon, on reports from Bloomberg that producers were considering increasing output by between 300-600,000 barrels per day, compared with a 1.5 million barrel per day initially sought by Russia.

In addition to tariffs on oil, China has also threatened imports on other energy sources, notably coal, in a bid to hurt Trump politically as well as economically.

“Coal miners count among Trump’s most vocal backers, but if China does stop buying US coking coal, it may force producers to accept lower prices from other buyers in order to move cargoes,” said Russell.

“The Chinese have probably calculated that they can take the pain from a trade conflict longer than Trump can, or at least longer than the US. economy, companies and workers will be prepared to tolerate.”


Britain, EU tell each other to move on trade

Updated 20 October 2020

Britain, EU tell each other to move on trade

  • Both sides call on each other to protect billions of dollars of trade between the neighbors

BRUSSELS: Britain and the EU said on Monday the door was still open for a deal on their post-Brexit relationship, calling on each other to compromise to find a way to protect billions of dollars of trade between the neighbors.

With just over two months before Britain ends a status quo transition arrangement with the EU, talks on a trade deal are deadlocked, with neither wanting to move first to offer concessions.

A no-deal finale to Britain’s five-year Brexit drama would disrupt the operations of manufacturers, retailers, farmers and nearly every other sector — just as the economic hit from the coronavirus pandemic worsens.

European Commission Vice President Maros Sefcovic repeated on Monday that the EU still wanted a trade deal but not “at any cost” after British Prime Minister Boris Johnson said on Friday there was no point in continuing talks.

“It has to be a fair agreement for both sides — we are not going to sign an agreement at any cost,” Sefcovic told reporters after meeting Michael Gove, Britain’s point man on the existing divorce agreement, in London.

“The EU is ready to work until the last minute for a good agreement for both parties,” Sefcovic said.

Britain, increasingly frustrated by the EU’s refusal to start text-based talks, called on the bloc to make the first move, with its housing minister saying that Brussels only had to make “some relatively small but important changes.”

Housing Secretary Robert Jenrick called on the EU to “go that extra mile, to come closer to us on the points that remain for discussion.”

A spokesman for Johnson again ruled out prolonging any negotiation beyond the end of this year, when the transition period runs out, saying the EU “must be ready to discuss the detailed legal text of a treaty in all areas with a genuine wish to respect UK sovereignty and independence.”

EU chief negotiator Michel Barnier had been due in London for talks with British counterpart David Frost this week. Instead, they will now speak by telephone on Monday to discuss the structure of future talks, Barnier’s spokesman said.

Negotiations broke down on Thursday, when the EU demanded Britain give ground. Issues still to be resolved include fair competition rules, including state aid and fisheries. EU diplomats and officials cast Johnson’s move as a frantic bid to secure concessions before a last-minute deal was done, and European leaders have asked Barnier to continue talks.

British officials have repeatedly said any deal has to honor Britain’s new status as a sovereign country and not try to tie it to EU rules and regulations.

German Chancellor Angela Merkel said compromises on both sides would be needed. French President Emmanuel Macron said Britain needed a deal more than the 27-nation EU.

Britain is launching a campaign this week urging businesses to step up preparations for a no-deal departure. In a statement accompanying the launch, Gove says: “Make no mistake, there are changes coming in just 75 days and time is running out for businesses to act.”

More than 70 British business groups representing over 7 million workers on Sunday urged politicians to get back to the negotiating table next week and strike a deal.