China's oil tariff move a relief for Sinopec, tactic in trade war

Published: August 10, 2018 11:38:54


An oil tanker unloads crude oil at a crude oil terminal in Zhoushan, Zhejiang province, China July 4, 2018. Reuters/File Photo

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 list on $16 billion in US goods announced late on Wednesday underscores the growing importance of the United States as a key global producer and a critical supply source as China, the world’s top oil importer, seeks to diversify supplies.

Removing crude imports, worth roughly $8 billion based on Sinopec’s earlier forecast of 300,000 barrels per day (bpd) in annual imports, 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 lobbying of various agencies such as the Ministry of Finance and the Ministry of Commerce.

Sinopec declined to comment.

The revision came after Sinopec (600028.SS), Asia’s largest refiner and biggest buyer of US oil, suspended new bookings until at least October over worries that a 25 per cent 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 also resume new bookings, the sources said, declining to be named due to the sensitive nature of the topic.

China’s US oil purchases shot to a record 553,000 bpd for June loadings, worth nearly $1 billion.

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.

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 US President Donald Trump threatens to choke off Tehran’s oil exports completely, analysts said.

Chinese exports accelerate even as Trump escalates trade war

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

“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.

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

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