China's tariff retaliation is aimed at its modest US energy imports

China is the largest energy importer in the world, but its purchases of US crude oil, LNG and coal are relatively modest. This reduces the impact of Beijing’s Tuesday move to impose retaliatory duties on the imports of U.S. natural gas, LNG, and crude oil.

China's Finance Ministry announced that, on February 10, it will impose tariffs of up to 15% on the imports of U.S. crude oil, LNG, and coal, and 10% on some autos and farm equipment.

Data from the U.S. Energy Information Administration revealed that Chinese imports of U.S. Crude Oil fell 52% in the first eleven months of 2024 compared to the same period a previous year.

According to Chinese customs figures, U.S. crude imports made up 1.7% of China’s total imports in the year. This is down from 2.5% a decade ago.

Chinese data shows that China's LNG purchases from the U.S. are increasing. They totaled 4,16 million tons worth $2,41 billion last year, almost double the 2018 volume for the fuel used for power generation, and accounted for approximately 5.4% of China’s purchases.

The U.S. ranks as the world's top LNG exporter, but only the fifth largest supplier of LNG to China. It still has ambitions to increase LNG exports under Trump in the coming years, and China, which is the largest importer in the world, could be a customer.

Saul Kavonic is an energy analyst with MST Marquee. He said that China purchased around 10% of U.S. Liquefied Natural Gas exports in the past year.

He said that China's tariffs would drive more U.S. volume to Europe, and also benefit other regional producers like Australia.

The negative impact of these tariffs on U.S. LNG will only partially offset the strong desire from other buyers, under pressure from Trump, to rebalance their trade deficits.

CRUDE COSTS

Mia Geng is an analyst with FGE. She said that during Trump's first presidency, when China imposed 25% on U.S. Crude, it stopped buying 300,000 to 400,000 barrels of U.S. Crude per day and began purchasing alternative supplies such as West Africa or Asian crude.

"We're still assessing it internally, but we expect to see a pause on purchases while lighter sweet alternatives are sought. She said that this impacts around 100,000 bpd from recent U.S. imports.

According to Sparta Commodities analyst June Goh, the tariffs will increase the cost of U.S. West Texas Intermediate crude in China compared with alternatives like Kazakhstan's CPC or Abu Dhabi's Murban grades.

Goh stated that the WTI price should not be affected by this as WTI is still able to flow into other regions.

IG Market Strategist Yeap Jun Rong stated that China's tariffs could be seen as a sign or escalation. This would reduce the likelihood of a temporary solution with Washington, similar to the one Canada and Mexico achieved at the last minute to delay U.S. sanctions.

Oil prices are continuing to decline, and this is causing a decrease in the broader risk sentiments. He said that market participants were now assessing the potential risks of a global slowdown in the event further titt-tat actions from both China and the U.S.

China's customs data shows that although China isn't a major importer of coal from the United States, the value of the shipments of coal used in steelmaking rose by almost a third, to $1.84billion in 2024.

(source: Reuters)