U.S. oil sellers may look to India as tariff war with China escalates

NEW YORK (Bloomberg) -- American oil producers may find a new friend in India as they brace for a trade war with China that could curb U.S. shipments.

Refiners in China were the top buyers of American crude oil in May, and have been regular importers since the U.S. revived domestic output and exports in recent years. But sales may slow amid a growing trade war between Beijing and the Trump Administration.

“If China imposes tariffs, their refineries won’t buy U.S. crude since it would cost more,” Sandy Fielden, director of research for commodities and energy at Morningstar Inc., said by telephone. “U.S. sellers would have to find alternative buyers.”

One option could be more shipments to India, which already has been buying more U.S. crude. In May, Indian refiners imported 4.7 MMbbl, or about nine times more than April and the most of any month based on U.S. government data going back to 2015.

If Beijing does impose tariffs on American oil, it could put downward pressure on the price of West Texas Intermediate crude, the U.S. benchmark, and may weaken its spread to Brent oil, the global market standard. That could lure India to take more U.S. crude, Fielden said.

To be sure, most Indian refineries are designed to process heavy, high-sulfur Iranian crude, which has been sanctioned. The bulk of the growth in American supply has been in light, low-sulfur oil produced in shale developments. “Shale crude is not an alternative to Iranian crude,” Fielden said. “Indian refiners can’t absorb all the U.S. oil that was going to China. They can import more, but can they process it?”