New York — 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% tariff threat on US crude imports might begin, the person said. The move comes as US President Trump has directed US trade representative Robert Lighthizer to consider increasing proposed tariffs on $200bn in Chinese goods to 25% from 10%.
Sinopec had already been reducing its US oil purchases, mainly because the discount for West Texas Intermediate (WTI) 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 US crude for August loading for similar reasons, the person said.
Sinopec media officials in New York didn’t immediately return an e-mail or phone request for comment.
China’s imports of US oil in July and August will be half those in June at 500,000 barrels, Matt Smith, ClipperData’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."
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," Smith said. The South Asian country is already starting to take more US crude and volumes will average 200,000 barrels per day (bpd) in July and August, he said.
Indian refiners won’t entirely fill the void left behind by China, since it has other suppliers, Smith added, with other potential buyers in Asia being South Korea and Taiwan. Also, India’s refineries are designed to process heavy, high-sulphur Iranian crude, which has been sanctioned. The majority of new American production is light, sweet shale oil.
Transatlantic 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. Said Smith: "Asia would basically be where the bulk of the Chinese volume would go instead of Europe."
