The U.S. trade dispute with China is likely to determine in a roundabout way how successful the U.S. is in imposing sanctions on Iran’s oil, and that uncertainty is likely to emerge in OPEC.
In a tit-for-tat tariff war with the United States, China proposed tariffs on U.S. energy imports on June 15 as part of a response to the U.S. announcement of tariffs on $50 billion worth of imports. This means that China would impose tariffs on US oil imports. Although the United States is not a major oil exporter, it has been increasing its exports.
According to vessel-tracking and port data compiled by Thomson Reuters Oil Research and Forecasts, about 300,000 barrels of that heads to China each day. With US crude exports running at about 2 million barrels a day, China’s purchases represent about 16% of the total, and China could stop those purchases depending on how the trade dispute develops with the U.S.
Meanwhile, China as the largest crude oil importing country, it may tilt the world level when it decides how much Iranian crude oil will withdraw from the world market. Analysts expect Iranian crude oil buyers in Europe, Japan and South Korea will slow or stop purchasing Iranian supply by the end of this year.
Due to Iran and other outages, including the steady decline in Venezuelan output, the Organization of Petroleum Exporting Countries (OPEC) deems it necessary to return oil to the market, but its members are arguing over the amount of oil that has returned to the market. It is crucial for OPEC to reach a cooperation agreement with Russia and other oil-producing countries that meet on Saturdays.
Discussions within the OPEC about how much oil will return to the market are also key to the group’s agreement with Russia and other producers, but there is disagreement.
Earlier this month the United States asked OPEC to increase oil supply amid rising prices. On June 19, Iran attacked US President Donald Trump’s call for OPEC to increase oil production and limit global energy prices, saying the group was “not an American organization”. Analysts expect OPEC to consider increasing production by about 1m barrels, ending a cut in production agreed in 2016.
“If OPEC doesn’t do something, I think we will see a $100 oil price,” Sheffield said on the sidelines of an OPEC seminar. He also said China and India remain the two wild cards when it comes to Iran, but the National Bank of India has warned that the Indian oil refinery’s purchase of Iranian crude oil will be restricted. China can limit, maintain or even increase the purchase of Iranian oil.
Oil customers have been scrambling to replace Iranian oil as US President Donald trump imposed financial restrictions on companies that would deal with Iran. The core issue of this week’s OPEC meeting debate is the shift in oil supply.
“OPEC does not know if 200,000 or a million barrels of Iranian oil will be withdrawn from the market,” Sheffield said. Iran exports about 2.4 million barrels a day, and about 1.2 million barrels a day were withdrawn from the market the last time the United States and other countries imposed sanctions on Iran. ‘any U.S. crude that China doesn’t accept will have other buyers,’ Mr. Sheffield said.
Iran Oil Minister Bijan Namdar Zanganeh slams Trump for politicizing oil and resuming sanctions against Iran led to soaring oil prices. He also said OPEC was an independent organization and that Trump could not let it oppose one of its founding members.
Russia Deputy Energy Minister Alexey Teksler told the seminar that he believes OPEC and other producers will agree on new production targets ahead of Saturday’s meeting.