By Devika Krishna Kumar and Ayenat Mersie
NEW YORK, June 20 (Reuters) - Oil markets are bracing for areshuffle of global trade flows as China threatens to imposetit-for-tat tariffs on imports of U.S. energy products,including crude.
China, which has bought an average 330,000 barrels per day(bpd) of U.S. crude oil this year, is threatening to place a 25percent tariff on various U.S. commodity exports, includingcrude oil, although it is so far unclear when such a measurewould come in place.
The decision came in response to U.S. President Donald Trumpsaying he was pushing ahead with hefty tariffs on $50 billion ofChinese imports.
And it triggered an aggressive response by Trump, who onMonday threatened to slap a 10 percent tariff on $200 billion ofChinese goods in addition to the import duties previouslyannounced.
The tariffs could restrict the flow of U.S. barrels going toChina - a business now worth almost $1 billion per month
About 14 million barrels of U.S. crude are set to arrive inChina in July, which would be the highest monthly figure onrecord, according to Thomson Reuters flows data.
An import duty would make U.S. oil less competitive thanother crudes, almost certainly resulting in a sharp fall ofChinese purchases, forcing U.S. oil firms to find other buyers.
In the first three months of this year, U.S. crude made uparound 5 percent of China's total crude imports, according toChinese customs data.
"It'll take the (U.S. oil) industry a few months to find newoutlets," said Scott Shelton, a broker at ICAP in Durham, addingthat U.S. crude flows to Europe and the Mediterranean willlikely pick up.
Outside China, however, WTI remains near a $10 per barreldiscount to Brent <CL-LCO1=R>.
Many traders expect this discount to widen further shouldthe flow of U.S. oil to China slow, meaning that other producerswould have to deal with high volumes of cheap American oilbecoming available in other big markets, including Europe.
China, in turn, is likely to replace the U.S. oil withincreased purchases from top suppliers Russia and Saudi Arabia.
Saudi and Russia are already pushing for an increase inproduction at a meeting of The Organization of the PetroleumExporting Countries (OPEC) this week.
"I think it would create a carousel affect where China thenbuys more alternate grades and other importers buy more U.S.grades," a U.S.-based trader with a global merchant said.
TRAPPED BARRELS?
The United States, where oil production <C-OUT-T-EIA> hasrisen by almost a third in the last two years to a weekly recordof 10.9 million bpd <C-OUT-T-EIA>, relies heavily on exports tomaintain market balance.
Billions of dollars worth of infrastructure projects arecurrently underway to facilitate exports further, with China atthe center of export growth forecasts.
"Port of Corpus Christi is at the gateway to global marketsand certainly to China ... at the end of the day, we are alllooking at the long game, which is, we will be selling moreenergy to China," said Sean Strawbridge, chief executive of thePort of Corpus Christi Authority in Texas.
"I'm sure the political headwinds will subside so we're notbeing deterred today, we're not losing our focus on continuingto develop the needed infrastructure."
Exports surged to an unprecedented 1.76 million bpd in Aprilfrom 1.67 million bpd in March.
European countries, including Italy and the Netherlands,accounted for the bulk of the increase in April U.S. crudeexports.
Some traders expect U.S. barrels to get trapped if thedispute between the world's two biggest economies turns into afully blown trade war, which in turn would force own the priceof U.S. crude even further.
"There is going to be a sales lull that will keep thesebarrels trapped and the widening of the spread that we see willpersist and get worse before it gets better," said John Kilduff,partner at Again Capital LLC in New York.
For China, the world's biggest importer of crude oil,relatively higher Brent prices means oil would become moreexpensive.
This would put Chinese refiners at a disadvantage, said JohnColeman, senior analyst of North American crude markets at WoodMackenzie.
As the trade dispute between Washington and Beijing heatsup, the world's top oil producers are set to gather in Vienna,Austria, on June 22 to set global output strategy.
Producer group OPEC, which is effectively led by SaudiArabia, has been withholding supplies since 2017 to prop upprices together with non-OPEC members like top producer Russia.
Russia and Saudi Arabia are both pushing for an increase inoutput to make up for losses in supplies in Venezuela as well aslooming U.S. sanctions against Iran.
Russia's flagship Urals crude oil is one of the gradespreferred by China's independent refiners, known as teapots.
Middle East flows to Asian countries such as India have alsopicked up over the past two months as Brent's premium over theDubai benchmark <DUB-EFS-1M> has widened.
Middle East light grades such as Murban, therefore, wouldnow have an even easier time finding a home in China, traderssaid.
Overall, however, traders do not expect serious supplyshortfalls to result from Chinese crude tariffs against theUnited States.
"The world's an awfully big place, consuming an awful lot ofoil, so you may not have it that much harder for to goelsewhere," said Spencer Dale, chief economist at oil major BP.
"You may see some differences in ... oil flows (but) I don'tsee it, at the moment, as a source of major disruption ... Someof that oil which would've been supplied by U.S. into China willgo elsewhere," he added.
(Reporting by Devika Krishna Kumar and Ayenat Mersie in NEWYORK; Additional reporting by Henning Gloystein and Florence Tanin SINGAPORE, Olga Yagova in MOSCOW and Amanda Cooper in LONDON;editing by David Evans and Diane Craft)
BP (BP.)
