The tanker is always vulnerable to geopolitical shifts, but owners will now have to contend with the “drums of trade war” coming from the US and directed towards China. In its latest weekly report, shipbroker Gibson said that “China officially increased tariffs up to 25% on $60 billion of US products from 1st June, following the US decision to increase tariffs on $200bn/year of imports from China to 25% from 10th May. Chinese imports of nearly every US energy commodity now face a tax of up to 25%. Crude is exempt, but China’s imports of US crude have fallen dramatically anyway since the 2nd half of 2018. Despite the trade conflict, US crude exports continue to grow. The loss of trade to China is being offset by higher shipments to other Asia Pacific countries and Europe. Similarly, Chinese crude imports continue to increase, with US barrels being replaced from multiple sources. As such, up until now the impact of US-China trade conflict on the crude tanker market has been very limited, although undoubtedly there would have been stronger long haul VLCC demand, if China had continued buying US crude”.
According to Gibson “however, trade tensions are translating into significant volatility in oil prices as fears of a global economic slowdown intensify. China, of course, is exposed the most, with the GDP growth already down from 6.8% during 1H 2018 to 6.0% in 2H 2018, according to the International Monetary Fund (IMF). China’s trading partners also have been negatively affected. Global manufacturing and trade volumes have been decelerating since the 3rd quarter of 2018 and the slowdown is starting to show up in sluggish consumption of middle distillates such as gasoil and diesel. Global manufacturers have reported falling export orders for eight months since September 2018, according to the new export orders component of the JP Morgan global purchasing managers’ index. Furthermore, the Netherlands Bureau of Economic Policy Analysis showed that trade volumes peaked in October and have since been contracting at the fastest rate since 2009. The latest round of tariffs will undoubtedly apply further downward pressure on global economy. The IMF anticipates that US – China tariffs could reduce global GDP rates by 0.3% in the short term from 3.3% in 2019 and 3.6% in 2020. Due to the obvious link between economic growth and oil demand, there is of course a growing risk of slower growth in global oil demand. Argus media suggested that if the growth in world GDP slows to 3%, this potentially could reduce growth in global oil demand by 130,000 b/d this year and by around 250,000 b/d in 2020. Of course, it remains to be seen by how much demand will actually be affected, as China has introduced stimulus measures to reduce the impact of new tariffs. Separately, the shipping industry also has rapidly approaching global sulphur cap on marine bunkers, which will offer a big boost to demand for diesel regardless of economic developments”, said the shipbroker.
“However, we should not forget about other threats. Could we see a further retaliation by China that will directly affect tanker demand? There has been a suggestion that one “weapon” China has at its disposal is the country’s ability to increase oil product exports by granting additional export quotas. If Chinese products flood international markets, refining margins could come under pressure, translating into lower crude throughputs and hence demand for shipments. Beyond China, the conflict is escalating between US and Mexico, with US threatening to impose tariffs on all Mexican exports. Should these go ahead, the negative impact on global economy and hence tanker trade is likely to be even bigger. However, the alternative scenario is that if trade disputes are resolved, the eventual outcome will be very different to the situation we are facing right now”, Gibson concluded.