China threatens to impose 25% tariff on U.S. crude

By targeting U.S. crude, Beijing has placed the Trump administration’s “energy dominance” in its cross-hairs.

In a development that adds to pressure on the U.S. government to scale back trade pressures on China, energy analysts and executives have disclosed the tariffs proposed by China would squeeze sales of the U.S. shale industry of which China is the largest customer.

China has proposed imposition of 25% tariff on U.S. crude, natural gas and coal exports to China if the U.S. were to act on its threat of imposing its own tariffs on the import of Chinese goods.

For the first time, in the escalation trade conflict, energy has been added to the trade dispute between the two countries.

By targeting petroleum, China is placing the Trump administration’s “energy dominance” agenda in its cross-hairs. Washington has grabbed market share from oil producers from OPEC and non-OPEC countries.

China is the largest client for U.S. crude and imports 363,000 barrels a day in the six months ended March 2017. In July, as per Thomson Reuters shipping data, oil exports to China have risen to 450,000 bpd.

“It is going to hurt everyone for the short term,” said Ron Gasser, vice president at Mammoth Exploration, a west Texas shale producer. Regardless of the tariffs, U.S. crude will continue to flow to markets, thus forcing “…you to put your oil somewhere else, and it’ll cost you more” to line up other buyers.

Beijing’s threat of applying tariffs on U.S. shale oil has caught Washington off guard since it had been negotiating with the U.S on ways to increase its purchase of U.S. energy and agricultural products to reduce its $375 billion trade surplus. If Beijing were to go ahead with its threat, it could source crude oil from West African suppliers at the expense of the United States.

As per Daniel Yergin, vice chairman of consultancy IHS Markit, China’s tariffs are “creating a whole new set of uncertainties on top of what’s already there”.

However, many U.S. producers have scoffed at the worry saying demand for oil is likely to overcome the impact of China’s tariffs just as this year’s higher oil prices have not dampened the global thirst for oil and natural gas.

“Crude oil is a fungible global commodity,” said Gary C. Evans, CEO of Energy Hunter Resources, a shale producer. “Without growing U.S. crude supply and exports, global prices could today be multiples higher than they currently are.”

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