US-China trade war endangers economy, EIA raises oil price forecast
Our pick of the latest petrochemical news you need to know
ACC: US-China tariff increases endangers US economy
The Trump administration's proposed 25% tariff on $200 billion worth of Chinese imports affects more than $15 billion in chemical and plastics products and is eroding confidence in the industry, which could result in economic consequences such as job losses and canceled investments, the American Chemistry Council (ACC) said.
“Future growth for our industry depends on a strong trading relationship with China and a trade policy that creates certainty and predictability for investors, not a looming threat of more or higher tariffs,” ACC President and CEO Cal Dooley said.
The first U.S. round of 25% tariffs on $34 billion in Chinese imports implemented in July 2018 and China’s retaliatory tariffs did not include chemicals. However, U.S. and China tariffs in round 2 in August 2018 and round 3 in September 2018 targeted chemicals directly.
The U.S. released this week a list of new tariffs of up to 25% that it could impose on $300 billion worth of Chinese goods.
The Office of the U.S. Trade Representative published a list of Chinese goods that would be hit with new duties, ranging from artists' brushes and paint rollers to clocks and watches. The list also includes a wide range of sporting goods, from baseballs to fishing reels. And it dedicates several pages to agricultural products, from livestock to dairy, plants and vegetables.
“The proposed product list covers essentially all products not currently covered by action in this investigation,” the USTR office says. It adds, “The proposed product list excludes pharmaceuticals, certain pharmaceutical inputs, select medical goods, rare earth materials, and critical minerals.”
The U.S. proposal will enter a public comment period and could take effect sometime in late June or July.
China's State Council Customs Tariff Commission announced it will impose tariffs of up to 25% on $60 billion worth of U.S. goods starting in June, in retaliation for Trump's tariffs on $200 billion of Chinese goods.
Several key U.S.-made chemicals will be hit by China in this latest round of tariffs, including polymers, methanol and aromatics.
Starting June 1, China will hike tariffs on 5,000 U.S. goods. That list includes raising tariffs to 25% from 10% on a number of petrochemicals including: toluene, xylene, paraxylene, methanol, purified terephthalic acid (PTA), polystyrene, acrylonitrile-butadiene-styrene (ABS), polyvinyl chloride (PVC) , toluene di-isocyanate (TDI) and methylene diphenyl di-isocyanate (MDI), among others.
The recent escalation in the U.S.-China trade dispute is raising doubts about a recovery that the chemical industry has expected to take place in the second half of this year, analysts at investment bank Jefferies said.
“A more extended dispute or even another round or two of escalations would be a stark contrast with forecasts of a sharp 2H19 recovery in earnings that used as one of 2-4 elements a stabilization in trade policy and a consequent restock and pricing cycle," according to a research note from the investment bank Jefferies.
Jefferies said higher tariffs may also increase the likelihood that China will carry out plans to build new methanol, olefins and paraxylene (PX) projects.
EIA revises its crude oil price forecast upward as supply expectations change
In its May 2019 edition of the Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) revised its price forecast for Brent crude oil upward, reflecting price increases in recent months, more recent data, and changing expectations of global oil markets.
Several supply constraints have caused oil markets to be generally tighter and oil prices to be higher so far in 2019 than previous outlooks expected.
Members of OPEC had agreed at a December 2018 meeting to cut crude oil production in the first six months of 2019. Compliance with these cuts has been more effective than the EIA initially expected. In the January STEO, OPEC’s crude oil and petroleum liquids production were expected to decline by 1.0 million b/d in 2019 compared with the 2018 level, but EIA now forecasts OPEC production to decline by 1.9 million b/d in the May STEO.
Within OPEC, EIA expects Iran’s liquid fuels production and exports to also decline.
On April 22, 2019, the U.S. issued a statement indicating that it would not reissue waivers, which previously allowed eight countries to continue importing crude oil and condensate from Iran after their waivers expired on May 2. Although EIA’s previous forecasts had assumed that the U.S. would not reissue waivers, the increased certainty regarding waiver policy and enforcement led to lower forecasts of Iran’s crude oil production.
Venezuela—another OPEC member—has experienced declines in production and exports as a result of recurring power outages, political instability, and U.S. sanctions.
In addition to supply constraints that have already materialized in 2019, political instability in Libya may further affect global supply. Any further escalation in conflict may damage crude oil infrastructure or result in a security environment where oil fields are shut in. Either situation could reduce global supply by more than EIA currently forecasts.
In the May STEO, total OPEC crude oil and other liquids supply was estimated at 37.3 million b/d in 2018, and EIA forecasts that it will average 35.4 million b/d in 2019. EIA assumes that the December 2018 agreement among OPEC members to limit production will expire following the June 2019 OPEC meeting.
U.S. crude oil and other liquids production is sensitive to changes in crude oil prices, taking into account a lag of several months for drilling operations to adjust. As crude oil prices have increased in recent months, so too have EIA’s domestic liquid fuels production forecasts for the remaining months of 2019.
The EIA expects that global oil markets will be tightest in the second and third quarters of 2019, resulting in draws in global inventories. By the fourth quarter of 2019, EIA expects that inventories will build again, and Brent crude oil prices will fall slightly.