As China made good on its threat to impose 25% tariffs on $16 billion worth of U.S. imports, one big-ticket item originally on its hit list was conspicuously missing: crude oil. Oil had been one of a slate of targets China listed in June for tariffs to counter those the Trump administration threatened on Chinese imports. The gambit jeopardized a budding relationship: Over the past two years China has become the biggest buyer of U.S. crude-oil exports, last year taking a fifth of the total.<doc-sep>Amid a steep correction in crude prices, China said on Wednesday that it would impose a 25-percent tariff on U.S. imports worth US$16 billion, including crude oil, diesel, cars, coal, and steel products, in retaliation to the U.S. list of US$16 billion worth of Chinese imports that will be taxed by U.S. authorities from August 23. On Wednesday, the Office of the United States Trade Representative (USTR) released a list of around US$16 billion worth of imports from China that will be subject to a 25-percent additional tariff as part of the United States’ response to China’s unfair trade practices related to the forced transfer of American technology and intellectual property, the office said. “This second tranche of additional tariffs under Section 301 follows the first tranche of tariffs on approximately $34 billion of imports from China, which went into effect on July 6,” it added. China didn’t waste time in retaliating, and said today that its tariffs on 333 U.S. products, including crude oil, would also take effect on August 23. As the U.S.-China trade spat turns into a full-blown war with tariffs and retaliatory tariffs and threats of further tariffs, U.S. energy exports to China may suffer with Beijing now following through with its threat to slap tariffs on U.S. oil and oil product imports. China has, in recent years, become a key export market for growing U.S. energy exports. In fact, China is America’s second-largest crude oil customer after Canada. Chinese imports of U.S. crude oil in May, for example, averaged 427,000 bpd, more than any other destination and surpassing Canada’s 289,000 bpd imports, EIA data shows. Related: China’s Oil Futures Jump To Record High Due to the rising trade tension between China and the United States, the trading arm of Chinese state oil major Sinopec is said to have suspended imports of crude oil from the United States. Earlier this month, China included for the first time liquefied natural gas (LNG) in its list of goods up for a potential 25-percent import tariff, should the United States impose additional tariffs on Chinese imports. Last week’s Chinese threat to include LNG on a tariff list has already had Chinese LNG end-users and suppliers saying that they would likely deter spot procurement of U.S. LNG cargoes in the near term if the tariff comes into effect. By Tsvetana Paraskova for Oilprice.com More Top Reads From Oilprice.com:<doc-sep>The tanker Maria sails out of the Port of Corpus Christi after discharging crude oil at the Citgo refinery in Corpus Christi, Texas. The U.S. in the next five years will become an energy exporting powerhouse — rivaling Saudi Arabia in oil exports and growing into one of the world's largest gas exporters, regardless of its trade spat with China, analysts said. China slapped tariffs on a range of oil products, liquid petroleum gas and coal, as well as threatened to tax U.S. liquified natural gas, a stinging rebuke since U.S. officials had pushed burgeoning U.S. energy exports as a way for China to trim its huge trade surplus. China this year imported 20 percent of America's still small but growing crude oil exports, which totaled 1.76 million barrels a day through June, according to Citigroup analysts. It also bought 0.4 billion cubic feet a day of the 2.77 bcf/d liquefied natural gas, exported by the U.S. this year. Crude oil futures fell sharply Wednesday amid concerns that Chinese demand for oil imports is slowing after the latest import data, and as it slapped a new round of tariffs on U.S. products. While its crude imports recovered slightly in July, imports had fallen in the previous two months and July's numbers were still among the lowest this year after a drop-off in demand by China's smaller independent refineries. West Texas Intermediate futures lost 3.8 percent to $66.50 per barrel. Chinese imports of crude for July were up slightly from June at about 8.48 million bpd, up from 8.18 million bpd a year ago, and June's 8.36 million bpd, according to data from the General Administration of Customs. China did not explicitly cite crude oil in its latest list of tariffs on $16 billion in goods, released Wednesday, but it listed a whole range of refined products and fuels, heavy oils and petrochemical products. "One knee-jerk reaction that is almost certainly wrong is that China's rejection of US imports poses a significant challenge to US exports. Whether in the long- or short-run, China's potential imposition of tariffs or quotas on US exports is a tax on Chinese consumers rather than an obstacle to US exports," Citigroup energy analysts wrote. Goldman Sachs analysts said Chinese imports of U.S. oil are down 70 percent in April through June, but they do not expect the tariffs to change the outlook for U.S. energy exports. "Absent a major impact on global growth and hence energy demand, however, we believe that such tariffs are unlikely to derail the outlook for US energy exports with global markets, requiring more US exports in coming years," Goldman analysts wrote. The decline in Chinese imports was not really a surprise. "Sinopec has pulled back from buying U.S. crude oil," said John Kilduff of Again Capital. He said a decline in purchases by China's biggest oil company has also already showed up in slightly lower U.S. weekly exports of crude. But that should not impact U.S. exports, he said. "It's like a gold rush to do it. The oil we produce in the Permian can't all be used in the U.S. It has to go abroad." China's snub of U.S. products has been having an impact on the market temporarily and even before some tariffs went into effect. "Crude oil and LNG markets are facing similar problems as soybeans, almonds and corn, with short-term bearish impacts," the Citi analysts said. "As China Inc. turns away its rising wave of hydrocarbons imports from the US, prices are being hit. The dislocation is an inevitable result as Chinese buyers look elsewhere given uncertainties on pending 25% tariffs on imports from the US." They point out that China is cutting off its LNG imports from the U.S. at the weakest time of year for LNG demand, unlike winter when demand can surpass available supplies by 6 to 8 bcf/d. China was expected to be a big buyer of U.S. LNG in the winter, and it has also become a major buyer of U.S. condensates and natural gas liquids, which are petrochemical feed stocks. By 2020, Citi expects U.S. LNG exports to rise to around 9 bcf/d as available gas resources in the U.S. are also expected to increase. "By 2025, Citi expects the US to be a 100-mt [metric ton] exporter (13-bcf/d) along with Russia and Qatar, with pure market pricing and no destination restrictions, making it increasingly attractive regardless of Chinese trade policy. For oil, US exports could grow by ~1-m b/d annually for at least the next five years," the analysts wrote. Growth of 1 million barrels a day in crude alone each year would put U.S. exports at about 6.8 million barrels a day, near the 7 million barrels a day exported by Saudi Arabia last year. Saudi Arabia also exported 1.4 million barrels a day of crude products. The U.S. last week exported 1.9 million barrels a day of crude oil and more than 5 million barrels a day of oil-related products, including 1.2 million barrels a day of diesel fuel, according to the latest U.S. government data. Exports had been exceeding 2 million barrels a day in the weekly day recently. Citigroup analysts say that the concern is that the dependability of U.S. supplies would be cast in doubt because of the tariff wars. "But so long as the US places no barriers on exports of its own, placing such barriers on exports by importing countries would be potentially self-defeating. This coming winter for example, China is likely to be short on both LNG and soybeans, two US commodities on which it has placed barriers," they note. "Would Beijing continue to tax its own citizens with a 25% (or any other level) tariff?"<doc-sep>China has so far chosen not to impose tariffs on U.S. crude oil and liquefied natural gas, but crude exports from Texas have fallen sharply this summer due to fears over President Trump’s escalating trade conflict and shrinking discounts, according to a report by the investment research firm Morningstar. China, which last year surpassed the United States as the world’s largest crude importer, is buying more oil from Russia and Saudi Arabia, said Sandy Fielden, director of oil and products research at Morningstar. As a result, U.S. energy companies are learning they need to build better long-term relationships with Asian nations, including China, to sell crude, LNG and other petroleum products, Fielden argued. Crude exports only became legal again at the end of 2015, when Congress ended a 40-year ban that began in the 1970s after the Arab oil embargo. About 75 percent of U.S. crude exports come from the Texas Gulf Coast. “The industry is figuring out there is more to export markets than delivering crude to Houston or Corpus Christi docks by pipeline and waiting for passing tankers,” Fielden said in his report, which came out Monday. “A necessary first step is better shipping, hence the flurry of midstream projects announced this year to build out Gulf Coast export terminals to handle giant tankers, or very large crude carriers, that keep long-haul freight costs to a minimum.” RELATED: U.S. refineries process record amounts of crude Apart from port expansions, companies such as Houston’s Enterprise Products Partners and global commodities trader Trafigura are proposing building crude oil exporting terminals deeper off the Texas Gulf Coast in order to more easily accommodate the largest crude-carrying vessels. U.S. crude oil exports to China surged from about 22,000 barrels a day in 2016 up to almost 400,000 barrels day last year and early in 2018, accounting for about 20 percent of all U.S. crude shipments. This summer, those volumes have plummeted to 200,000 barrels a day. U.S. energy companies are compensating by diverting more of that crude to India and other Asian nations, such as South Korea, Taiwan, Singapore and Thailand. While China is buying less U.S. crude, the decision to spare oil and LNG from punishing tariffs shows that the Chinese still need the energy, analysts said. China has slapped tariffs of U.S. agricultural products in retaliation for tariffs placed on it products, including steal, by the Trump administration. Brian Youngberg, a senior energy analyst at Edward Jones in St. Louis, said the trade conflict with China shouldn’t upset energy markets too much, since Texas and U.S. oil producers are likely to find other buyers. “At the end of the day, oil is a global commodity,” Youngberg said, “and oil will find a home somewhere in the world.”<doc-sep>
China abruptly changed course Wednesday and removed oil from a list of American products it is subjecting to tariffs, as the energy-hungry country acknowledged the limits on trade war losses it can absorb. Beijing announced on Wednesday that it would impose retaliatory 25 percent tariffs on $16 billion worth of U.S. imports, a response to the Trump administration after it issued similar tariffs against China on Tuesday. China's new tariffs will target U.S. automobiles, steel products, medical equipment, and some energy products, including coal, diesel, gasoline, and propane. But for now, China will not put tariffs on U.S. crude oil. An early draft of potential tariff targets published by China in June did include crude oil. China is the largest U.S. market for crude exports. Experts say China spared U.S. oil because it may struggle to get it elsewhere due to disruptions from other major suppliers. “China’s decision to take crude oil off the list may signal its realization that the country would have more to lose from a 25 percent tariff on U.S. crude as the supply related uncertainty deepens in the global oil market,” said Jane Nakano, a senior fellow in the Energy and National Security Program at the Center for Strategic and International Studies. “Denying itself access to U.S. crude would have made crude oil imports more expensive for China and may have triggered energy security concern, especially if world developments drive up the global oil prices.” Among the most pressing supply issues for China, and other major buyers, is that Iran is facing renewed oil sanctions imposed by the U.S., and Venezuela is suffering from a political and financial crisis that has dramatically limited production there. U.S. crude oil exports to China went from nothing before 2016 to a record 15 million barrels in June. The growth came after former President Barack Obama in 2015 signed a law passed by Congress ending a 40-year-old ban on oil exports. The surging U.S. shipments of oil to China has helped reduce America’s trade deficit with the country, while also providing fuel for Beijing’s growing energy demand. “Crude oil trade should be an easy win-win for Washington and Beijing,” Nakano said. “The United States has crude oil it wants to sell, and exporting it to China helps the Trump Administration address its concern over bilateral trade deficit with China. China needs crude oil to sustain economic growth.” Despite both sides' interest in maintaining energy ties, trade tensions are affecting the oil trade relationship. China's largest refiner, state-controlled Sinopec, last week said it would delay importing U.S. crude until September. In another snub to Trump, China has declined to stop importing oil from Iran, ignoring U.S. threats to penalize countries that don’t wind down their purchases of Iranian crude by Nov. 5. Independent refineries in China, however, have an appetite for light, sweet crude from U.S. shale production that is easy to refine, and likely helped lobby Beijing to not impose oil tariffs, experts say. Even so, the oil and gas industry has warned Trump to de-escalate his trade war with China before it imperils U.S. liquified natural gas exports. China said last week it could impose a 25 percent tariff on U.S. liquified natural gas, or LNG — the chilled, liquid form to which gas must be converted for shipment in giant tanker vessels across the sea. The move, which surprised the U.S. energy industry, would be in retaliation for Trump directing his trade policy team to hike tariffs on China to 25 percent, instead of the 10 percent tariff initially under consideration. China’s demand for LNG is soaring, especially as it seeks to combat a severe smog and pollution problem in many of its major cities that comes as a direct result of coal-generated electricity. Experts say tariffs could stop China, the world’s fastest-growing LNG market, from signing long-term contracts with American developers. That could be more damaging to the U.S., because while oil is fungible, and can easily find its way to other markets, LNG is not. So the U.S. energy industry has reason not to celebrate oil being spared from the trade war with China. “I would not read too much into any leverage U.S. might have on China,” said Edward Chow, who is also a senior fellow in the Energy and National Security Program at the Center for Strategic and International Studies. “At the end of the day, oil is fungible. We are on a downward spiral in the trade war.