August 10, 2018 / 6:12 AM / 10 months ago

UPDATE 1-China move to drop crude off tariff list a relief for Sinopec

    * Change in tariff list came after Sinopec suspended
    * Propane is main refined oil product to be hit by tariffs
    * U.S. imports could be used to offset lost Iran barrels

 (Adds analyst comment; background on tax on propane; tweak in
    By Chen Aizhu
    BEIJING, Aug 10 (Reuters) - China's decision to remove crude
oil from its latest tariff list in an escalating trade war with
the United States was a relief to state oil firms prompted by a
strong lobbying effort by main importer the Sinopec Group,
Beijing-based oil sources said. 
    Dropping crude oil from the final tariff list on $16 billion
in U.S. goods announced late on Wednesday underscores the
growing importance of the United States as a key global producer
and critical alternative supply source for top importer China,
which is seeking to diversify its oil purchases.             
    Removing crude imports, worth roughly $8 billion annually
based on Sinopec's earlier forecast of 300,000 barrels per day
(bpd) for 2018, also gives Beijing room to manoeuvre in future
negotiations with Washington, especially as it may soon lose
some Iranian oil shipments due to reimposed U.S. sanctions. 
    "Sinopec did a lot of lobbying work with the government,"
said one person with direct knowledge of the state refiner's
efforts to sway the policy decision of various agencies such as
the Ministry of Finance and the Ministry of Commerce. 
    Sinopec             declined to comment. 
    The revision came after Sinopec - Asia's largest refiner and
biggest buyer of U.S. oil - suspended new bookings until at
least October over worries that a 25 percent tariff would
prohibit it from finding buyers in China.              
    "The U.S. will be the single largest source of new oil
supplies outside OPEC. It's in China's interest to diversify
supplies," said a second source, a state oil trading manager. 
    The move could encourage Sinopec to bring in cargoes loaded
in June and July, and resume new bookings, the sources said,
declining to be named due to the sensitive nature of the topic. 
    Some analysts say Beijing is bowing to China's heavy
reliance on imported crude oil.
    "The issue for the Chinese is that any tariff on U.S.
exports, (including) oil, will likely hurt their economy
disproportionately because they have to import," said Kenneth
Medlock, senior director of the Center for Energy Studies at
Rice University's Baker Institute for Public Policy. 
    "U.S. exports will find a home regardless of how the global
supply deck is reshuffled," Medlock said. 
    Although crude oil has been dropped off the list, refined
fuels including propane, kerosene, diesel and lubricants are
among the products due to be levied an additional 25 percent tax
from August 23.              
    Propane will be the main item hit, with China's imports
amounting to some $2 billion last year. Chinese imports of other
refined fuels were negligible.              
    China's U.S. crude oil purchases shot to a record 553,000
bpd for June loadings, worth nearly $1 billion.
    Dropping oil from the list could also be seen as a good-will
concession that could help China win a waiver to keep buying
Iranian oil even as U.S. President Donald Trump threatens to
choke off Tehran's oil exports completely, analysts said. 
    China now takes in around 650,000 bpd of Iranian oil, trade
worth roughly $15 billion a year. State oil giants China
National Petroleum Corp (CNPC)            and Sinopec have
invested billions of dollars in Iranian oil fields, and have
been importing their equity production. 
    But if the U.S.-China trade war is not scaled back, and
Trump carries through threats of tariffs on $200 billion in
Chinese goods, Beijing could put U.S. crude back on the list,
the sources said.              
    "China's decision to drop crude may be an attempt to keep
U.S. crude as leverage for potential negotiations," Michal
Meidan of Energy Aspect wrote in a client note on Thursday. 
    But it could also just give Chinese buyers more time to
bring in U.S. crude they have already bought, she said. 

 (Reporting by Chen Aizhu; Additional reporting by Gary
McWilliams in HOUSTON and Henning Gloystein in SINGAPORE;
Editing by Tom Hogue)
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