U.S. oil exports, on the rise to China, face trade spat threat

China last month offered to boost purchases of U.S. goods by about $25 billion this year ahead of a mid-June tariff deadline from U.S. President Donald Trump. Oil was thought to be a strong candidate to gain from that offer at a time when OPEC is curbing its production.

With Friday’s announcement of $50 billion in U.S. tariffs on Chinese imports, however, that offer’s off the table. At risk: China imported 18.4 MMbbl of American crude and oil products in March, making it the third biggest customer behind Mexico and Canada. Thanks to rising oil prices, U.S. crude sales rose by $1.2 billion in the first four months of 2018, compared with the same period a year earlier, census figures show.

“There’s not only the direct impact from the tariff, but also the possibility that the tariff could slow down economic growth and hurt oil demand,” said Phil Flynn, a senior market analyst at Price Futures Group Inc. in Chicago, by telephone. “It’s a two-pronged effect. ”

Still, oil’s a free-flowing commodity and can be sold elsewhere if China sales are hindered, said Brian Youngberg, an analyst at Edward Jones & Co., based in St. Louis, Missouri. “If there’s a ban or tariff, the U.S. can just sell to someone else,” Youngberg said by telephone. “There are quality differences but for the most part, oil is oil.”

In response to Trump’s tariff announcement, China quickly issued a list of 545 product categories on Friday, covering about $34 billion in exports from the U.S., to be subject to an additional 25% tariff starting July 6. They included a variety of agricultural products, including soybeans, corn and wheat along with beef, pork and poultry, plus automobiles.

A second set of tariffs to begin at a later date listed other goods including coal, crude oil, gasoline and medical equipment.

“I’m sure it’s a concern for U.S. shale producers but not an overwhelming one, or a big market breaker,” Flynn, of Price Futures, said. “Somebody else is going to buy those barrels of oil.”