The war of words over trade between the United States and China finally turned into an actual trade war Friday, after the administration of President Donald Trump announced a list of goods whose import from China, worth $50 billion in 2017, would be subject to an additional tariff of 25 percent. Among the retaliatory measures announced by the Asian country was the proposed imposition of tariffs on imports of petroleum products from the U.S., a move that sent domestic crude oil prices crashing.

West Texas Intermediate crude — the U.S. benchmark for crude oil — fell to its lowest point Monday since the first week of April, and 11 percent from its recent high of over $72 on May 21. As of 5 a.m. EDT Monday, WTI crude was trading at $64.67, having recovered from its low point of $63.61 Sunday night, about 10 p.m. EDT.

The fall in WTI crude is not in tandem with the global benchmark, Brent crude, which was trading about 0.7 percent higher Monday morning than a day before. The two prices are separated by a few dollars, Brent usually costing more, but that gap has increased in recent weeks for a number of reasons. However, the different directions in trade at present are caused largely by China’s announcement.

After listing 545 U.S. products, worth $34 billion, on which it will impose a 25 percent import duty from July 6, China announced another list of 114 goods, worth $16 billion, on which it will impose a similar tariff, with the final measures and the time they go into effect to be announced later. Most of the items on the second list are related to the petroleum industry, all the way from crude oil to fuel for cars and aircraft to other products like naphtha, grease and lubricants, to natural gas and propane and even wax, and further downstream to include various polymers and plastics.

The second list also includes other energy products that Trump has been trying to promote — various types of coal and associated fuels.

Oil Rig
A pump jack is seen at sunset near Midland, Texas, May 3, 2017. REUTERS/Ernest Scheyder

Production of crude oil in the U.S. is at an all-time high and rising, with the country now only second to Russia globally, having overtaken Saudi Arabia a few months ago. According to data from the U.S. Energy Information Administration, the country exported almost 28.5 million barrels of crude oil and petroleum products in March 2018, of which over 18.4 million barrels, or close to 65 percent, was imported by China.

Given the current price of WTI crude, that amounts to just short of $1.2 billion a month, or over $14 billion a year. For an industry that is booming, a 25 percent extra tariff imposed by its biggest customer may not be good news.

However, it could be good news for end users in the U.S., if more of the cheaper oil is supplied within the country. But that runs the risk of sustained lower prices leading to companies shutting their rigs instead of making small or no profits.

Since other large producers, including Russia, Saudi Arabia and the cartel of oil-producing nations it leads — the Organization of the Petroleum Exporting Countries — have all said they want to increase production, after over two years of an output squeeze, crude price have been on the downturn already. As the global supply of crude oil increases, China should have no problem meetings its demands from elsewhere, including Iran, which would be desperate to sell its oil, following the renewed sanctions from the U.S.

It would be U.S. companies in the oil industry that would suffer, and that showed in the stock performances of several of those companies Friday. On the New York Stock Exchange, Exxon Mobil and Chevron fell 1.54 percent and 1.95 percent respectively, while Halliburton and Schlumberger fell 2.38 percent and 2.21 percent each. ConocoPhillips lost 4.07 percent.