Trade war impasse casts a ‘dark cloud’ over outlook for US oil shipments, analysts warn

An escalating trade war between the world’s two largest economies is negatively impacting the outlook for U.S. crude shipments, energy analysts have warned, amid fears that China could soon dramatically reduce its intake of American oil.

Trade tensions between Washington and Beijing prompted some external observers to warn the outlook for China-bound U.S. crude shipments was firmly skewed to the downside.

“Casting another dark cloud over the outlook for U.S. crude shipments is the ongoing U.S.-China trade impasse,” Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note.

It was around this time last year that China emerged as the biggest buyer of U.S. crude, Brennock said, but Chinese buyers were now seen as a “virtual shoo-in” to halt their intake of American oil.

He explained that while losing what was once your biggest customer could hardly be conducive to sustained growth, any drop-off in Chinese purchases might be offset by an increase in exports to other consumers.

“All things considered, the U.S. crude-export machine may struggle to maintain its record-breaking run,” Brennock said.

‘Too early’ to tell

At the start of August, President Donald Trump announced the White House would impose additional 10% tariffs on $300 billion worth of Chinese imports from September 1.

In response, China let its yuan weaken below the key 7-per-dollar level for the first time in more than a decade. Trump appeared to escalate tensions even further by declaring China as a currency manipulator.

The tit-for-tat dispute sent oil prices tumbling, with crude futures dropping to a seven-month low at one stage.

Oil prices have since pared some of their recent losses. International benchmark Brent crude traded at $59.08 Monday afternoon, up around 0.8%, while U.S. West Texas Intermediate (WTI) stood at $55.32, almost 0.9% higher.

Matthew Smith, director of commodity research at ClipperData, told CNBC via email that it was still “too early” to tell whether China’s intake of U.S. crude imports had fallen away in recent weeks.

An oil tanker sits beside transfer pipes at a terminal as it prepares to unload its cargo of fuel on July 4, 2018 in Zhoushan, China. VCG | Getty Images

The last loading of U.S. crude to leave the Gulf of Mexico declaring for China left on August 6, Smith said, citing data sourced by ClipperData. He explained it was important to note that a lag of more than one week between loadings was “not unusual.”

China, the world’s largest oil buyer, was one of the leading destinations of U.S. crude throughout the first half of last year — in what had been a mutually beneficial energy relationship with the U.S., the world’s biggest crude producer.

However, Beijing’s U.S. crude imports plummeted almost immediately after the trade war talk started, with flows completely drying up at the turn of the year as the situation deteriorated.

China seen targeting US oil next month

It is not just crude flows that have been impacted as a result of the trade tensions, Smith said, highlighting that no liquefied natural gas (LNG) deliveries from the U.S. to China had been recorded since March.

In fact, when compared to other commodities — such as soybeans — U.S. crude flows to China actually “look healthy,” Smith said.

Beijing announced it had stopped purchasing agricultural products from the U.S. earlier this month.

The U.S. and China have imposed tariffs on billions of dollars’ worth of one another’s goods since the start of 2018, battering financial markets and souring business and consumer sentiment.

Michal Meidan, director of the China Energy Programme at the Oxford Institute for Energy Studies, said in a research note earlier this month that China would probably impose charges on most, if not all, of its U.S. imports, including oil, if Trump pressed ahead with new tariffs at the start of September.

Meidan also warned that since the U.S. had already taken Chinese telecoms giant Huawei to task, it was no longer inconceivable it would consider targeting a Chinese oil and gas major.