US shale producers and energy analysts are concerned that Chinese threats to slap tariffs on US petroleum products will cut into their sales to their largest customer.
US shale producers anxious as Beijing puts Trump’s “energy dominance” in cross hairs
As the trade dispute between China and the United States escalates, many energy executives and industry analysts are concerned that the proposed Chinese tariffs on US petroleum products will cut into US shale sales and further pressure US crude prices.
China says it will put a 25 per cent tariff on imports of US crude, natural gas and coal on July 6 should the Trump administration carry out its threat to impose tariffs on Chinese goods that day.
So far the trade dispute has hit US imports of Chinese metals and solar panels and US exports to China of medical equipment and soybeans.
Beijing’s targeting of the US petroleum industry puts the Trump “energy dominance” agenda in the cross-hairs at a time when US shale production is syphoning off market share in the lucrative region from OPEC producers.
Data shows that between October 2017 and March 2018, China imported about 363,000 barrels per day (b/d), making China is the largest importer of US crude. Thomson Reuters shipping data shows US crude exports have since risen and are expected to hit 450,000 b/d in July.
“It is going to hurt everyone for the short term,” Ron Gasser, vice president at Mammoth Exploration, a west Texas shale producer told Reuters. Even though US crude will remain on the market, with the tariffs, “it’ll force you to put your oil somewhere else, and it’ll cost you more” to find other buyers.
According to Reuters, China’s threat to put tariffs on US crude imports has caught American crude producers off guard. In recent trade talks between the US and China, the two countries had agreed that Beijing would purchase more US energy and agriculture products to reduce its $375 billion trade surplus with the US.
The proposed tariffs are “creating a whole new set of uncertainties on top of what’s already there,” Daniel Yergin, vice chairman of consultancy IHS Markit, told Reuters. Yergin made the comments as as he arrived in Vienna to attend the cartel’s meeting.
With the Trump administration’s sanctions on Iran, Yergin says “The global oil industry didn’t really worry or think about trade issues. Now, trade issues are moving really pretty fast up the (OPEC) agenda”.
The burgeoning trade war between the US and China has US oil industry players and politicians calling for the Trump government to be cautious.
Reuters reports the American Fuel and Petrochemical Manufacturers Association called on Trump to “work with China – and all nations – to reduce barriers to competition rather than promote them”.
A spokesman for US Senator Michael Enzi, Republican from Wyoming, says on Monday, the Senator called for the administration to be “wary of how these retaliatory measures from China could seriously impact the industry”.
In West Virginia coal country, many are concerned that the trade dispute could harm coal exports. “China is an enormously important trading partner”, said Steve Roberts, president of the West Virginia Chamber of Commerce.
But some US crude producers are confident that the growing demand for US energy would prevail over any impact Chinese tariffs could have. They argue that higher oil prices have not impacted the global demand for oil and natural gas.
The tariffs are “a lot of sabre rattling”, said Gary C. Evans, chief executive of Energy Hunter Resources. He doesn’t think they will hurt US crude or LNG exports.
“Crude oil is a fungible global commodity,” Evans told Reuters. “Without growing U.S. crude supply and exports, global prices could today be multiples higher than they currently are.”
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