Chinese Refiner Halts US Oil Purchases, May Use Iran Oil Instead

With the US and China contemplating their next moves in what is now officially a trade war, a parallel narrative is developing in the world of energy where Asian oil refiners are racing to secure crude supplies in anticipation of an escalating trade war between the US and China, even as Trump demands all US allies cut Iran oil exports to zero by November 4 following sanctions aimed at shutting the country out of oil markets.

Concerned that the situation will deteriorate before it gets better, Asian refiners are moving swiftly to secure supplies with South Korea leading the way. Under pressure from Washington, Seoul has already halted all orders of Iranian oil, according to sources, even as it braces from spillover effects from the U.S.-China tit-for-tat on trade.

"As South Korea's economy heavily relies on trade, it won't be good for South Korea if the global economic slowdown happens because of a trade dispute between U.S and China," said Lee Dal-seok, senior researcher at the Korea Energy Economic Institute (KEEI).

Meanwhile, Chinese state media has unleashed a full-on propaganda blitzkrieg, slamming Trump's government as a "gang of hoodlums", with officials vowing retaliation, while the chairman of Sinochem just become China's official leader of the anti-Trump resistance, quoting Michelle Obama's famous slogan "when they go low, we go high." Standing in the line of fire are U.S. crude supplies to China, which have surged from virtually zero before 2017 to 400,000 barrels per day (bpd) in July.

Representing a modest 5% of China's overall crude imports, these supplies are worth $1 billion a month at current prices - a figure that seems certain to fall should a duty be implemented. While U.S. crude oil is not on the list of 545 products the Chinese government has said it would immediately retaliate with in response to American duties, China has threatened a 25% duty on imports of U.S. crude which is listed as a U.S. product that will receive an import tariff at an unspecified later date.

And amid an escalating tit-for-tat war between Trump and Xi in which neither leader is even remotely close to crying uncle, industry participants expect the tariff to be levied, a move which would make future purchases of US oil uneconomical for Chinese importers.

"The Chinese have to do the tit-for-tat, they have to retaliate," said John Driscoll, director of consultancy JTD Energy, adding that cutting U.S. crude imports was a means "of retaliating (against) the U.S. in a very substantial way".

In an alarming sign for Washington, and a welcome development for Iran, some locals have decided not to see which way the dice may fall.

According to Japan Times, in a harbinger of what's to come, an executive from China's Dongming Petrochemical Group, an independent refiner from Shandong province, said his refinery had already cancelled U.S. crude orders.

"We expect the Chinese government to impose tariffs on (U.S.) crude," the unnamed executive said. "We will switch to either Middle East or West African supplies," he said.

Driscoll said China may even replace American oil with crude from Iran. "They (Chinese importers) are not going to be intimidated, or swayed by U.S. sanctions."

Oil consultancy FGE agrees, noting that China is unlikely to heed President Trump’s warning to stop buying oil from Iran. While as much as 2.3 million barrels a day of crude from the Persian Gulf state at risk per Trump's sanctions, the White House has yet to get responses from China, while India or Turkey have already hinted they would defy Trump and keep importing Iranian oil. Together three three nations make up about 60 percent of the Persian Gulf state’s exports.

To be sure, for some turmoil in the oil market present opportunity: "If China retaliates with tariffs on U.S. crude, that could improve South Korea's terms of buying U.S. crude...because the U.S. would need a market to sell to," said the KEEI's Lee, while JTD Energy's Driscoll said U.S. oil sellers were "already discounting" their crude.

While next steps remain unclear, the potential outcome for the US isn't: should China fully pivot away from US exports and replace them with Iranian product, the US trade deficit will resume rising, further adding to the pressure of what is Trump's biggest economic hurdle: the double US deficits.

The flipside is that since less Iranian oil exports will go unused, it may provide a solace to the US consumer facing the highest gas prices in four years. However, if the ongoing pipeline bottleneck in the Permian is not resolved soon, said  solace will prove to be short-lived.

Comments

whatsupdoc FireBrander Sun, 07/08/2018 - 21:12 Permalink

Hmmm.  It could be simple really.

Just arm the Yemenis to inflict some serious damage on Saudi Arabia.  An impact enough to severely curtail oil exports that is.

That should get some things happening.  A 30% increase in oil prices would make a proper impact especially if China were to buy from the Iranians at reduced prices.

Military actions on floaty things in the Gulf area would also improve things somewhat.

Getting pipelines built into Iran from Russia and to China is a priority like no other.

In reply to by FireBrander

EddieLomax divingengineer Mon, 07/09/2018 - 03:53 Permalink

The fact no one is mentioning is that every oil producer is producing at near maximum rates at todays prices.

That means that China must displace another purchaser to go for Iranian crude, that purchaser has to buy US.

For years now every oil producer has been investing far too little in future production, there are obvious consequences for that and we'll see them come home to roost before long.

In reply to by divingengineer

2banana Juggernaut x2 Sun, 07/08/2018 - 20:03 Permalink

Did you even READ the article?

This is China cutting off its nose to spite America.

America and its esteemed and honorable president are still selling oil to China.  At the very same price.

China doesn't want to BUY it. 

Cause that will teach those running dog Americans complaining about their $350 billion/year trading deficit with China...

In reply to by Juggernaut x2

rtb61 divingengineer Mon, 07/09/2018 - 05:53 Permalink

So they can be more selective about who they support with trade for mutual benefit. China, preferred oil sources, Russia, Iran, Venezuela and with all of those China can trade in China manufactured products (double plus bonus for China, the US is wasting it's money making Russian, Iranian and Venezuelan oil cheaper for China, stupid is as stupid does).

In reply to by divingengineer

divingengineer Winston Churchill Sun, 07/08/2018 - 19:55 Permalink

Plus one for the use of the word jingoistic in a sentence. I’m just delighted to see someone, for the first time in my life, stand up to these little pricks and send their whole system into a tailspin. We’ve been told that were helpless to do anything about it my entire adult life, then the day we do things start to happen immediately.

Their big threat right now is that they’ll turn all of our food away from their ports.

Lulz....

In reply to by Winston Churchill

max_is_leering Winston Churchill Sun, 07/08/2018 - 21:44 Permalink

seems pretty idiotic to me to start shitting on your bankster when he loans you the $$$ to build f35s... why doesn't trump tell Walmart to stop buying from china... or target... or walgreens... or any of them.... because to do that would mean some fat-assed trailer slob sitting all fat, dumb and well, fat, won't be able to get their cheap ass xmas lights for their fake tree and all the chilluns 'it might last one day' toys

 

you could be 100% correct about raising rev. and trying to get votes though

In reply to by Winston Churchill

DingleBarryObummer dirty fingernails Sun, 07/08/2018 - 20:07 Permalink

It wasn't always like that here.  (Correlation doesn't imply causality, BUT...) Since the Trump campaign started this forum has devolved into mindless hipshot binary emotional responses; devoid of logic/reason and full of unoriginal homo-erotic ad hominen attacks. 

It really is very sad.  This used to be the place I came to escape the "spin" and herd mentality, but it's largely gone now.  There's still a bit of the spirit here, but it's a shadow of it's former self.

In reply to by dirty fingernails

2banana CashMcCall Sun, 07/08/2018 - 20:50 Permalink

The facts say you are wrong.

"As of 2013, the latest figures available, China represents a $26 billion market for U.S. grains, meat, dairy products, fibers and other goods.

While the U.S. is the top provider of Chinese food imports, it is not alone in feeding the world's most populous nation. Brazil, Australia, Thailand, Indonesia, Malaysia, Canada and Argentina are among American farmers' top competitors in supplying China with food."

https://www.cnbc.com/2015/10/21/how-hungry-is-china-for-the-worlds-food…

 

Monthly import of agricultural products to China from April 2016 to April 2017 (in billion U.S. dollars)

From the charts - On a monthly basis - China imports $20+ billion/month of food

https://www.statista.com/statistics/275863/chinas-monthly-import-of-agr…

In reply to by CashMcCall

roddy6667 2banana Sun, 07/08/2018 - 22:48 Permalink

The average Chinese worker saves 36% of his pay. He can sustain a 36% pay cut by simply halting his savings for a while, making no changes in his lifestyle. By cutting out a few extras like eating in restaurants and travel, he can handle a 50% pay cut with no change in his lifestyle. The average family household has little or no debt.

62% of Americans get paid on Friday but are broke on Wednesday. They have no savings to speak of and a lot of debt.

Only 10% of Chinese citizens are in the stock market, and it is mostly non-essential money, not the life savings. More like casino money. The stock market is not that big a deal in China. 

Which do you think can handle a trade war?

In reply to by 2banana

raskefing roddy6667 Mon, 07/09/2018 - 03:47 Permalink

Also, the Chinese believe in something higher than themselves, and will sacrifice for longer, Americans are very divided and believe in nothing( sorry for the general statements) 

The facts are that America is moved one way or the other by what 20 percent of the population says, easy to manipulate, THE DEMOCRATS WILL HAVE A FIELD DAY WITH THIS.

In reply to by roddy6667