SINGAPORE: China’s threat to impose duties on US oil imports will hit a business that has soared in the last two years, and which is now worth almost $1 billion per month.

In an escalating spat over the United States’ trade deficit with most of its major trading partners, including China, US President Donald Trump said last week he was pushing ahead with hefty tariffs on $50bn of Chinese imports, starting on July 6.

China said Friday it would retaliate by slapping duties on several American commodities, including oil.

Investors expect the spat to come at the expense of US oil firms, pulling down the share prices of ExxonMobil and Chevron by 1 to 2 per cent since Friday, while US crude oil prices fell by around 5pc.

“This escalation of the trade war is dangerous for oil prices,” said Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA in Singapore.

“Let’s hope cooler heads prevail, but I’m not overly optimistic,” he added.

The dispute between the United States and China comes at a pivotal time for oil markets.

Following a year and a half of voluntary supply cuts led by the Middle East-dominated Organisation of the Petroleum Exporting Countries (Opec), as well as the non-Opec producer Russia, oil markets have tightened, pushing up prices.

The potential drop-off in American oil exports to China would benefit other producers, especially from Opec and Russia.

The Opec kingpin Saudi Arabia and Russia indicated on Friday they would loosen their supply restraint and were starting to raise exports.

A cut in Chinese purchases of US oil may also benefit Iran’s sales, which Washington is trying to curb with new sanctions it announced in May.

“The Chinese may just replace some of the American oil with Iranian crude,” said John Driscoll, director of consultancy JTD Energy Services.

“China isn’t intimidated by the threat of US sanctions. They haven’t been in the past. So in this diplomatic spat they might just replace US crude with Iranian oil. That would obviously infuriate Trump,” he said.

China’s aggressive riposte to Trump took some in the industry by surprise.

US crude exports to China have been rising sharply, thanks to a production surge in the past three years that was a welcome alternative to make up for the cut in supplies from Opec and Russia.

“We’re caught by surprise that crude oil is on the list,” said an official with a Chinese state oil major, asking not to be named as he was not authorised to speak to media.

Published in Dawn, June 19th, 2018

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Kurram atrocity
Updated 22 Nov, 2024

Kurram atrocity

It would be a monumental mistake for the state to continue ignoring the violence in Kurram.
Persistent grip
22 Nov, 2024

Persistent grip

An audit of polio funds at federal and provincial levels is sorely needed, with obstacles hindering eradication efforts targeted.
Green transport
22 Nov, 2024

Green transport

THE government has taken a commendable step by announcing a New Energy Vehicle policy aiming to ensure that by 2030,...
Military option
Updated 21 Nov, 2024

Military option

While restoring peace is essential, addressing Balochistan’s socioeconomic deprivation is equally important.
HIV/AIDS disaster
21 Nov, 2024

HIV/AIDS disaster

A TORTUROUS sense of déjà vu is attached to the latest health fiasco at Multan’s Nishtar Hospital. The largest...
Dubious pardon
21 Nov, 2024

Dubious pardon

IT is disturbing how a crime as grave as custodial death has culminated in an out-of-court ‘settlement’. The...