U.S.-China Trade War Will Hurt Shale Drillers
President Trump is back on his warhorse called Tariffs, yesterday announcing he was considering the introduction of a 10-percent levy on Chinese goods worth US$200 billion. The latest escalation in the tariff exchange, however, is a little bit different than all the others so far. It’s different because it came after Beijing said it intends to slap tariffs on U.S. oil, gas, and coal imports.
China’s was a retaliatory move to impose tariffs on US$50 billion worth of U.S. goods, which followed Trump’s earlier announcement that another US$50 billion in goods would be subjected to a 25-percent tariff starting July 6. And that’s not all. Now, Trump has said if China does not change its “unfair practices related to the acquisition of American intellectual property and technology” new tariffs on another US$200 billion worth of Chinese goods will follow.
This sounds like a never ending game of chicken with the stakes close to becoming ridiculous. Yet the threat to U.S. oil exports to China is not at all ridiculous: it is very real and should worry drillers.
In a recent column, Reuters analyst Clyde Russell noted that U.S. oil imports into China account for a relatively tiny portion of the total, at 3.5 percent. However, for oil exporters, shipments to China account for 16 percent, both figures based on data from the first five months of 2018. Related: Oil Markets Turn Bearish Ahead Of OPEC Meeting
This is a discrepancy that should be alarming, despite belief among other analysts that U.S. drillers could just sell their barrels of cheap oil elsewhere. This is true, of course, oil is in universal demand. Yet it is also true that China is the biggest buyer, and as Russell put it, it would be easier for China to find new suppliers of crude than it would be for U.S. exporters to find new buyers.
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