Agency sees peril to energy growth

Escalating trade tensions between the U.S. and China could slow global economic growth and curtail oil demand this year, hurting energy-centric economies like Houston, the International Energy Agency said Friday.

If the two countries follow through with proposed tariffs on a variety of goods — including possible Chinese levies on U.S. polyethylene, a major product of the Gulf Coast — then exports of the fuels and petrochemicals that support Houston’s economy could tumble, the IEA, a Paris-based adviser to energy importing states, said in its monthly oil market report.

It’s too early to forecast the potential effect of rising tariffs on oil and the economy, the IEA said, but it pointed to a 2016 analysis by the intergovernmental Organization of Economic Cooperation and Development. That analysis said if rising tariffs increased global trade costs by 10 percentage points, international trade would fall 6 percent and global economic growth could fall 1.4 percentage points.

A reduction of 1 percent percentage point in global economic growth would slice off 690,000 barrels a day in oil demand, the according to the IEA. The U.S.China trade dispute, the organization said, “is introducing downward risk” to forecasts of global oil demand growth of 1.5 million barrels a day in 2018.

The U.S. and China have engaged in a tit-for-tat trade dispute since President Donald Trump said he would impose tariffs on $50 billion a year of Chinese goods. China almost immediately retaliated with its own tariffs on U.S. products.

In another 2016 analysis, the International Monetary Fund said that if the U.S. slapped a 20 percent tariff on East Asian goods, and Asian countries retaliated, U.S. exports would fall by 6 percent and imports by 4 percent, and slice 1.3 percentage points off growth over five years. The U.S. economy grew 2.3 percent last year, according to the Commerce Department.

China’s proposed 25 percent tariff on propane exported from the U.S. would hit natural gas liquids producers. China, which purchased 110,000 barrels a day of propane from U.S. shippers last year, would likely turn to Middle East suppliers.

The IEA said tariffs on U.S. polyethylene exports could hit U.S. petrochemical companies.

The IEA said the U.S. “ships more than 12 percent of its lowdensity polyethylene production to China, and the announced tariff of 25 percent would make this trade uneconomic.”