Oil slides after China announces tariff on USA crude

Ivan Schwartz
August 8, 2018

Oil prices rose on Tuesday after US sanctions on Iranian goods went into effect, intensifying concerns that sanctions on Iranian oil, expected in November, could cause supply shortages.

US crude futures fell more than $1 per barrel to $68.13 after China said it was retaliating against USA tariffs by slapping additional import duties of 25 percent on $16 billion worth of USA goods, including oil and diesel.

The response of oil prices to API's report on inventories suggests market players have already factored in the immediate effects of USA sanctions against Iran on prices, hence volatility has been reigned in to an extent.

According to OPEC sources, top crude exporter Saudi Arabia pumped around 10.29 million barrels per day (bpd) of crude in July, down about 200,000 bpd from a month earlier.

"This clearly shows there is hesitation among buyers around continuing to purchase Iranian crude with the implementation of these sanctions", said Warren Patterson, commodity strategist for ING Bank NV, adding that the dip in flows will probably result in tighter supply of oil. The sanctions, which would come into force from November 4, are likely to block current payment routes used to pay for Iranian imports.

After the sanctions were lifted in 2016, Indian state-owned refiners stepped up Iranian crude imports as Tehran offered steep discounts on freight.

Discussion around possible waivers from the United States for some importing countries were still floating around the market, resulting in uncertainty about the impact the Iranian sanctions will likely have, analysts said.

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"It certainly is a reminder to everyone that the U.S.is serious about sanctions, and it's doubtful they will grant waivers", said John Kilduff, partner at Again Capital Management in NY.

FGE added, however, that U.S. would be only filling a part of the void created by a fall in imports from Iran.

While U.S. crude exports to China appear to have held up in August, with about 342,000 bpd expected to arrive, they seem set for a slump in September. "The reports that Saudi Arabia's production actually dropped in July continue to provide support for the market".

In terms of production, the EIA on Tuesday slightly cut its 2018 expectation for average 2018 US crude output to 10.69 million bpd, down from its previous estimate of 10.79 million bpd.

India first imported U.S. crude oil in October a year ago and has since then oil firms have been buying oil from that country on a tender basis.

People's Republic of China imported 83.51 per cent of the total exported quantities of Omani crude oil during July 2018, a slight drop of 0.04 per cent month-on-month. US Eastern time (0401 GMT) on Tuesday. This represents around a third of global oil demand.

This is unedited, unformatted feed from the Press Trust of India wire.

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