A closer look at US-China tariff threats
There is little relief in sight for escalating tariffs between the US and China, which poses additional demand headwinds for oil. Mid-level Chinese officials came to Washington at the end of August to meet with Treasury Department officials, the first official talks between Washington and Beijing since the trade conflict intensified. We assess that this development will not lead to a meaningful thaw in trade tensions. The US and China both proceeded with tariffs on $16 billion in August. Though crude had originally been threatened as part of China’s list, it ultimately did not make the cut. Rather, LPG and other oil products were included. The exclusion of crude highlights both Beijing’s reservations of exposing its economy to higher crude prices as well as a possible attempt to preserve an argument on energy security that would allow it to continue importing Iranian crude following the imposition of US sanctions. LNG remains on the second-round list of threatened Chinese tariffs of 25%, which will set back progress on the ability of US LNG developers to sign new offtake contracts with Chinese buyers, a critical component to securing financing and moving new projects toward final investment decisions. The US will likely split this next round into multiple tranches, with a first round imposed by early October.
Note: The forecasts/analyst estimates above from Brent & Henry Hub are an indication based on third party sources and information. They do not represent the views of KPMG.
*Guest contributor for September edition