China’s surprise decision to include crude oil in its latest round of tariffs on imports from the US is unlikely to restrict the overall US-Asia crude trade flows as various other Asian buyers are keen to pick up any US crude cargoes diverted from Chinese buyers.

In retaliation to the US government’s 10% tariff on Chinese goods announced on August 15, Beijing announced Friday that it plans to levy a 5% tariff on US crude imports from September 1, as part of a new round of tariffs on $75 billion worth of US goods.

However, US crude oil suppliers are expected to largely shrug off the latest counter measures from Asia’s biggest oil consumer as demand for the US product remains robust in the region.

US crude oil has increasingly become a staple for many Asian refineries, with the sharp increase in US crude procurement from refiners in South Korea, Taiwan, India and Thailand more than making up for the cut back in China’s purchases this year.

South Korea emerged as Asia’s biggest customer of US crude oil this year, importing 60.23 million barrels of crude and condensate from the North American producer in the first half, up more than fourfold from a year earlier, data from Korea National Oil Corp. showed.

Taiwan broke into the top three buyers of US crude in Asia this year. The island state received 182,344 b/d of crude oil from the US in H1, more than double of the 90,875 b/d imported in same period a year earlier, according to data from the Bureau of Energy, Ministry of Economic Affairs.

China was the biggest buyer of US crude oil in Asia in 2018, but US crude sales to China has been rather small this year.

The Asian country imported 15.45 million barrels of crude oil from the US in H1, down 76.2% from the same period a year earlier, according to data from the General Administration of Customs.

“We are unlikely to take much US crudes as they attract 5% tariff now,” said a senior executive at state-run Chinese refiner Sinopec.

“I think oil trade flows will be balanced,” he added, indicating that other Asian buyers would likely increase US crude purchases on China’s behalf, while Chinese refiners take up more non-US grades going forward.

OPPORTUNITY FOR OTHER BUYERS

For Asian refiners, sweet crude supply sources are relatively limited compared to sour crude supplies, and China’s sharp cut back in light sweet US crude purchases would present other regional buyers an opportunity to secure more low-sulfur refinery feedstocks, market participants said.

South Korean refiners, including SK Innovation and GS Caltex, can increase crude imports from the US as more North American barrels would be available in the market if Chinese buyers shy away, industry sources and company officials told S&P Global Platts.

“We have already sharply increased shipments from the US in recent months … we have also been testing new US grades to check whether they are suitable in our facilities or not,” said an official at a South Korean refiner.

Still, the officials said that there was a limit to how much more light sweet US crude the companies could take as South Korean refineries are designed to process mainly medium sour Middle Eastern crude oil.

In Japan, the country’s largest refiner JXTG Nippon Oil & Energy said Middle Eastern sour crudes would remain its main feedstock basis. However, JXTG will continue diversifying its supply sources, a company spokesman said when asked about its US crude procurement outlook for the second half.

Another Japanese refiner which had previously bought US grades like Mars Blend said it will consider taking additional US crude cargoes if more barrels become available in the regional market, and as long as the crude quality and price match its needs, according to a company source.

In Southeast Asia, traders and refinery sources in Thailand, Singapore and Vietnam told Platts that companies may consider offers from Chinese refiners and traders looking to resell some of the US crude cargoes initially bought for September and October deliveries.

“No signal yet but [we] should be [seeing some offers soon],” said a Southeast Asian crude trader.

“US crude is a very popular item for many Asian refiners, so there are plenty of buyers willing to absorb the volume that China wouldn’t take,” said a trading desk manager at a Southeast Asian refiner.

Although the North American crude benchmark WTI’s discount against Dubai and Brent narrowed sharply in recent trading cycles, light sweet US crude remains cheaper than many key light-end export grades produced in the Middle East, North Sea, Oceania and Southeast Asia.

The outright price spread between WTI MEH (Magellan East Houston) and Abu Dhabi’s light sour Murban crude, both on an Asia-delivered basis, averaged minus 21 cents/b in July and minus 11 cents/b to date this year, Platts data showed.

The spread between WTI MEH and Malaysia’s flagship Kimanis crude on an FOB Sabah basis averaged minus $3.7/b in July and minus $3.14/b so far this year, Platts data further showed.