Crude Flat as China Tariffs Targets US Oil Products

Fears have again switched from a tight market to one of waning demand. File Image / Pixabay

Crude trading on Thursday resumed a  posture more in keeping with previous weeks than in the past few days, with both benchmarks losing some ground due to China imposing 25 percent tariffs on U.S. products.

West Texas Intermediate settled down 3 cents at $67.83, and Brent settled down 5 cents at $74.73 per barrel - modest declines, but notable considering both contracts had climbed by over $2 per barrel 24 hours earlier after the U.S. government reported a bigger-than-anticipated drop in crude stockpiles, which played into traders' fears that the market may be tightening.

That notion has quickly taken a back seat to the familiar worry that market demand may actually wan due to the escalating trade war between the U.S., and China, the latest development of which saw  the imposition on Thursday of 25 percent tariffs on $16 billion worth of each other's goods; both countries have now imposed tariffs on a combined $100 billion of products since early July, and Washington still has a list of another $200 billion worth of Chinese imports that could face duties.

Stephen Brennock, analyst at PVM Oil Associates, said of traders' reaction on Thursday to the latest tariffs, "Fears are rife that economic headwinds stemming from an escalation in their trade war will ultimately hurt global oil demand."

Still, the incendiary media headlines that have stoked these fears don't exactly correlate to the economic declines the trade war is expected to cause: Moody's Investor Service said, "These [overall] measures are expected to shave up to 0.3-0.5 percentage points from China's real GDP growth in 2019; for the U.S. ... trade restrictions will trim off about one quarter of a percentage point from real GDP growth to 2.3 percent in 2019."

Gene McGillian, VP of market research at Tradition Energy, mused that "The market is trying to balance the worries about decreased global demand growth and how much extra oil the Saudis and Russians are going to put on."

He also pointed out something that has tended to be overlooked in the incessant focus on the geopolitical tensions involving countries such as China and Iran: alluding to the recent bigger than expected draw in U.S. stockpiles, he said, "There's a better fundamental picture than a year ago."

However, long term market improvements are never as motivating as outright fear, and the tit for tat war between Washington and Beijing shows no signs of slowing, especially in light of the fact that much-vaunted talks between the two parties have so far contained no senior officials.

SP Global Platts says that "this leaves the door wide open for tariffs on two major U.S. energy commodities exported to China in the next round -- crude oil and LNG."

Platts went on to report that the U.S. "exported 141,000 barrels per day of petroleum products to China in May, a 10-month low," while "China's crude oil imports from the U.S. fell sharply in July and August from June as state-owned Sinopec, the world's biggest refiner by capacity, was forced to reverse plans to lift significantly higher volumes of US crude this year."

Curiously, the market didn't seem to respond to news earlier this week of Saudi Arabia calling off the domestic and international stock listings of state oil giant Aramco, the IPO of which was up until recently considered so vital to the kingdom's economic diversity and which triggered market gains throughout 2017-18.