US-China trade war to pose spillover risks for oil market sentiment

US-China trade war to pose spillover risks for oil market sentiment

Baku, Azerbaijan, Aug.31

By Leman Zeynalova – Trend:

US-China trade war will pose spillover risks for the oil market sentiment, Trend reports with reference to Fitch Solutions Macro Research (a unit of Fitch Group).

President Trump has announced a 10 percent tariff on an additional $300 billion worth of Chinese goods. The tariffs take effect on September 1 and have already met with a response from Beijing, with state-owned enterprises (SOEs ) ordered to halt purchases of US agricultural products.

"Oil markets reacted badly to the news with global benchmark Brent dropping 7.2 percent on August 1. The additional tariff measures and, more importantly, any further retaliatory measures by China, will do little to impact physical oil and gas flows between the US and China, which have already declined to low or near-zero levels over the past 18

months. But demand in both domestic markets will come under renewed pressure, posing spillover risks for global demand and market sentiment," reads the report released by Fitch Solutions.

The company believes that oil products trade will see little change.

"For refined products overall, trade between the US and China is relatively thin. However, trade in LPG was traditionally more significant, with Chinese imports taking up 11.4 percent and 11.9 percent of total US exports in 2016 and 2017, respectively. Escalating trade tensions

between Beijing and Washington saw these volumes tumble over 2018 and in the first five months of 2019, less than 1 percent of US LPG exports were sent to China. As with LNG, much of the drop-off occurred before tariffs were put into place with Chines e buyers shunning US LPG in favour of volumes from the Middle East," reads the report.

Crude trade flows, although relatively small, may face a greater impact, according to Fitch Solutions.

"China lacks scope to retaliate to US tariffs on a dollar-for-dollar basis and crude, which has so far been exempted from tariffs, looks increasingly vulnerable. Chinese imports of US crude showed some recovery in the first five months of the year, reaching almost 10 percent of total US exports in May. It seems likely that US-China crude flows will average lower in H219 than H119, regardless of whether or not tariffs are imposed by Beijing," said the report.

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Follow the author on Twitter: @Lyaman_Zeyn

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