Sinopec is said to delay US oil purchases amid tariff concerns as US-China trade war escalates

August 4, 2018
Chinese state-run refiner had already been reducing its US oil purchases

China’s largest refiner, Sinopec, will hold off on buying US crude as an escalating trade war between Beijing and Washington threatens to make American imports more expensive, according to a person familiar with the matter.

The state-run firm will delay buying any US oil for September shipment until it is clear when China’s 25 per cent tariff threat on U.S. crude imports might begin, the person said. The move comes as President Trump has directed US Trade Representative Robert Lighthizer to consider increasing proposed tariffs on $200 billion in Chinese goods to 25 per cent from 10 per cent.

Sinopec had already been reducing its US oil purchases, mainly because the discount for West Texas Intermediate crude against international marker Brent had narrowed. In July, Sinopec bought four supertankers of US domestic crude, compared with six to seven in June. The company didn’t purchase any UScrude for August loading for similar reasons, the person said.

Sinopec media officials in New York didn’t immediately return an email or phone call request for comment.

China’s imports of US oil in July and August will be half of what it took in June at 500,000 barrels, Matt Smith, ClipperData LLC’s director of commodity research, said by phone. “This has potentially as much to do with the WTI-Brent as it is to do with the tariff,” he said.

India could step in to buy some of the displaced oil if Chinese demand dissipates.

“With China out of the picture, India could take another few hundred thousand barrels a day of US oil,” Mr Smith said. The South Asian country is already starting to take more US crude and volumes will average 200,000 barrels a day in July and August, he said.

Indian refiners won’t entirely fill the void left behind by China, since it has other suppliers, he added. Other potential buyers in Asia could be South Korea and Taiwan, he added.

Also, India’s refineries are designed to process heavy, high-sulfur Iranian crude, which has been sanctioned. The majority of new American production is light, sweet shale oil.

Other potential buyers in Asia could be South Korea and Taiwan, Mr Smith said.

Trans-Atlantic markets could pick up some of the slack. Unlike Asia, the European market is already saturated with American oil, and has plenty of alternatives from the Atlantic Basin including West African and North Sea crudes.

“Asia would basically be where the bulk of the Chinese volume would go instead of Europe,” Mr Smith said.