Published: Mon, July 09, 2018
Business | By Tara Barton

OMCs gain as US-China trade war fears weigh on oil prices

OMCs gain as US-China trade war fears weigh on oil prices

This has tightened the market, especially in the United States.

Brent crude futures LCOc1 fell 25 cents, or 0.3 percent, to $77.14 per barrel by 0317 GMT from their last close, Reuters said.

John Driscoll, director of consultancy JTD Energy, suggested that China may even replace American oil with crude from Iran: "They [Chinese importers] are not going to be intimidated or swayed by USA sanctions".

In other news, Iran's oil minister accused Trump over the weekend of insulting OPEC by ordering it to boost production and lower down prices.

US tariffs on Chinese goods came into effect Friday; China retaliates, duty on USA crude possible.

As part of a wave of retaliation for Friday's US tariffs, China has threatened a 25 percent duty on imports of USA crude.

"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).

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"If China imposes tariffs, their refineries won't buy US crude since it would cost more", Sandy Fielden, director of research for commodities and energy at Morningstar Inc., said by telephone.

The United States and China exchanged the first salvos in what could become a protracted trade war on Friday, slapping tariffs on $34 billion worth of each others' goods and giving no sign of willingness to start talks aimed at a reaching a truce.

Import duties would make US oil uncompetitive in China, forcing its refiners to seek alternative supplies in a tight market.

In an early sign of future times, an executive from China's Dongming Petrochemical Group, an independent refiner from Shandong province, said his refinery had already cancelled US crude orders. He added that his refinery had cancelled USA crude imports and would switch to Middle East or West African supplies instead. Although concerns that oil prices will be weighed down by a trade conflict between the two economic powerhouses, have dissipated to some extent, there is still the possibility that China will impose a tariff on US crude imports. By some estimates, about 1.7 to 2 million bpd of crude and condensate would be cut out of markets once the sanctions are implemented.

Even if the US government grants some waivers to allies, FGE estimated 1.7 to 2 million bpd of crude and condensate would be cut out of markets once its sanctions are implemented.

At 0531 GMT, August WTI crude oil is trading $74.13, up $0.33 or 0.45% and September Brent crude oil is at $77.39, up $0.28 or +0.36%. Venezuela is expected to lose another 400,000 bpd by year-end with production going to below 1 million bpd.

Although Saudi Arabia and Russian Federation have said they would raise output to make up for disruptions, FGE said "there simply is not enough capacity to make up for Iran's crude losses, plus Venezuela and Libya", and warned of the possibility of oil prices rising to US$100 per barrel.

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