China's tariffs on US oil to disrupt $1b business

WTI Crude Oil

Weekly August WTI Crude OilMore

Oil prices have advanced in the past four months with North Sea Brent crude rising from $62.79 to $79.80 a barrel by the end of May.

As recently as April, Saudi Energy Minister Khaled al-Faleh had voiced support for the oil cut deal, saying the market had the capacity to absorb higher prices.

By contrast, Saudi Arabia, the cartel's biggest producer and a fierce regional rival to Iran, could have the room to increase output more — and make more money — to make up for the shortfall in countries like Iran. China's imports of US oil have surged since 2017 to a value of nearly $1 billion per month.

Adding to the tensions, Iran and Venezuela continued to insist that OPEC on Friday debate US sanctions against the two countries, but the organisation's secretariat has rejected their requests, according to letters seen by Reuters.

"Oil prices are reversing this morning's bout of weakness as bottom pickers enter the fray ahead of this week's crucial OPEC/non-OPEC meeting", said Stephen Brennock, analyst at London brokerage PVM Oil Associates. Meanwhile, prices slumped after China threatened duties on American crude imports in an escalating trade dispute with Washington. Those who hate me call me crude."I worry for my future; everyone now talks down on me".

Escalating trade tensions between the US and China were also weighing on global markets including oil, said John Kilduff, partner at energy hedge fund Again Capital LLC in NY.

Rob Thummel, portfolio manager at Tortoise Capital, which focuses on energy markets, said those bottlenecks could last another 18 months, another aspect Opec members will likely take into consideration at the meeting.

Investors are nervous ahead of a key meeting in Vienna later this week between OPEC and other major oil producers. "This recalls the June 2011 meeting, when OPEC was unable to agree on an increase in production to compensate for the Libya", Fritsch said. Traders also raised issues about possible opposition to the production hike from Iran, Iraq and Venezuela. Several OPEC countries are not able to increase the production. Roberts said production from the Permian Basin, the biggest shale deposit, is being curbed because of infrastructure bottlenecks to get oil delivered to refineries.

The increase of 300,000 to 600,000 barrels a day - above the current OPEC+ production of about 32 million barrels a day - is a less theoretical number.

Finally, investors are keeping an eye on China because it may follow-through on its threat to put a tariff on USA crude oil imports now that President Trump has threatened the world's second largest economy with about $200 billion in new tariffs. Saudi Arabia's own data for May showed it increased its own output by 161,400 barrels a day.

Russian Federation has also said that limiting production for too long could encourage too much production growth from the United States which is not part of the agreement to curb output. The index looks to track the performance of the energy sector of the USA equity market.

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