Why are oil and gas traders seeking tariff waivers for US imports from China?

Oil and gas traders are likely to request tariff exemptions from Beijing, according to a Reuters report. 

The Chinese government intends to implement these tariffs on US crude and liquefied natural gas (LNG) imports starting February 10.

In the escalating trade tensions between the US and China, new tariffs have been implemented by both sides.

Shortly after US President Donald Trump imposed tariffs on Chinese goods, China retaliated with its own set of tariffs.

China's Finance Ministry announced that it would impose a 15% levy on imports of US coal and LNG, and a 10% levy on crude oil.

These tariffs, along with additional levies on farm equipment and certain automobiles, are set to take effect on February 10. 

This move marks a significant escalation in the ongoing trade dispute between the two largest economies in the world.

According to data from analytics firms Kpler and LSEG quoted in the report, six vessels are currently on their way to China.

These include four tankers carrying a total of 6 million barrels of US crude oil, comprising West Texas Intermediate (WTI) and Alaska North Slope (ANS), and two LNG vessels.

Tariffs add to trading woes

Three oil traders told Reuters on Friday that companies would likely need to apply for waivers for tankers that have already been booked.

Two of the traders added that it would be more difficult to obtain waivers for new deals.

Meanwhile, reselling US oil was improbable due to unfavorable prices amidst increased production, according to a Chinese trade source.

Two traders specializing in US oil revealed that they haven't observed any re-offered cargoes originally meant for China, according to Reuters. 

This is because there are still unsold cargoes available for March loading. 

Unipec, the trading arm of Sinopec, Asia's largest refiner, and the biggest Chinese buyer of American oil, has long-term US oil deals and participates in the pipeline oil business in the US, according to the report. 

A source told Reuters:

The 10% tariff means Unipec needs to do more swaps, such as sending more oil into Korea and Japan in exchange for whatever these buyers have to swap out for.

The source also said that Unipec could choose to increase its sales to US domestic customers.

LNG flows

A minimum of eight additional Very Large Crude Carriers (VLCCs) were reserved by companies such as Vitol, Gunvor, Occidental, ExxonMobil, and Atlantic Trading and Marketing Inc., the trading division of France's TotalEnergies.

Meanwhile, the Mu Lan vessel, which loaded LNG at Corpus Christi on December 16, is scheduled to reach the Fujian terminal on Thursday, according to the report.

The imposition of a 15% tariff on US LNG exports to China is expected to have a significant impact on global LNG trade flows.

According to analysts at Kpler, this tariff will likely lead to a sharp decline in US LNG exports to China. 

As a result, US LNG exporters will likely seek alternative destinations for their products, with Europe and other Asian countries emerging as the most likely beneficiaries.

This shift in trade flows could have several implications. For China, it may need to source LNG from other suppliers, potentially at higher prices.

For Europe, increased access to US LNG could help diversify its energy sources and potentially lower prices. 

For other Asian countries, the availability of US LNG could provide an opportunity to secure reliable energy supplies.

"China is expected to further increase LNG imports from Qatar, Russia, and other suppliers to replace potential declines from the US," analysts at Kpler said.