Crude Mixed as Asian Refiners React to Impending Trade War

Oil prices at highest level in three years

Oil prices at highest level in three years

Benchmark Brent LCOc1 was up 40 cents at $77.51 a barrel by 0850 GMT.

USA crude futures added 8 cents, or 0.1 per cent, to $73.88 after trading slightly lower earlier in the morning.

"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).

Reuters on Friday reported that Asian oil refiners are racing to secure crude supplies in anticipation of tensions with China (which has has threatened a 25 percent duty on imports of USA crude) and the sanctions against Iran aimed at shutting the country out of oil market.

US crude futures fell on Thursday as official data showed the country's oil inventories rose unexpectedly last week.

Washington put the tariffs in place on Chinese goods from 12:01am Washington D.C. time (0401 GMT) today.

"We expect the Chinese government to impose tariffs on (U.S.) crude", the executive said, declining to be named as he was not authorised to speak to media.

American crude shipments to China are around 400,000 barrels per day (bpd), worth US$1 billion a month at current prices.

"We're headed for an unparalleled trade conflict between the world's largest economies", said Stephen Innes, head of Asia-Pacific trading at brokerage Oanda.

According to Japan Times, in a harbinger of what's to come, an executive from China's Dongming Petrochemical Group, an independent refiner from Shandong province, said his refinery had already cancelled US crude orders.

But as is the case with any geopolitical conflict, the smart money always identifies opportunities, and Lee Dal-seok, senior researcher at the Korea Energy Economic Institute pointed out that "If China retaliates with tariffs on US crude, that could improve South Korea's terms of buying USA crude.because the USA would need a market to sell to".

To be sure, for some turmoil in the oil market present opportunity: "If China retaliates with tariffs on USA crude, that could improve South Korea's terms of buying US crude...because the US would need a market to sell to", said the KEEI's Lee, while JTD Energy's Driscoll said USA oil sellers were "already discounting" their crude.

He added his refinery had canceled USA crude orders and would switch to Middle East or West African supplies instead.

Energy consultancy FGE this week issued a stark warning of looming supply shortages due to USA sanctions against Iran and also because of disruptions elsewhere.

The United States says it wants to reduce oil exports from Iran, the world's fifth biggest oil producer, to zero by November, in a move that will oblige other big producers such as Saudi Arabia to pump more.

"Iran's exports are some 2.7-million barrels a day, including condensate", it noted.

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

U.S. investment bank Jefferies said today it expected "a drop in Iranian exports well in excess of 1 million bpd" due to the United States sanctions.

"Venezuela...will lose another 400,000 bpd by year-end with production going to below 1 million bpd", FGE said, adding that another 300,000 bpd of Libyan capacity was disrupted.

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 $100 a barrel.

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