It’s a Mad, Mad, Mad, World
Projectiles from North Korea, Trump saying that China broke the U.S.-China trade deal and, oh yeah, a very bullish Energy Information Administration (EIA) report that signals a tightening oil market in the coming weeks. Along with that you still have significant supply risks from the ongoing fighting in Libya and threats by Iran to shut down two of the world’s most important waterways; the Strait of Hormoz and the Bab el-Mandeb Strait. Another wacky week in oil and it seems to get a bit wackier every day. Iran has given Europe an ultimatum to get the U.S. off its back or it will backtrack out of the old nuclear deal and begin enriching uranium. The EU overnight urged Iran to respect the nuclear deal, says it aims to continue trading with Islamic Republic despite U.S. sanctions.
Something was flying down from the skies of North Korea. The AP reported that South Korea's military says North Korea has fired at least one unidentified projectile from its western area. They are not saying what was fired but it is very possible “Rocket Man” is at it again. Kim Jong-un is still miffed that President Trump left him hanging at the last summit with no deal, so he has decided to show his displeasure by shooting off projectiles. This is the second time. So far President Trump has been quiet on this, but you know it is only a matter of time until we get the tweet. For Kim Jong-un, I think he is lashing out because President Donald Trump broke his heart.
How do you mend a broken heart, or better yet how do you mend a broken trade deal? President Donald trump minced no words. Last night, at a rally in Florida the President said regarding China “By the way, you see the tariffs we're doing. Because they broke the deal. They broke the deal," Trump said Wednesday. "So, they're flying in, the vice premier tomorrow is flying in — good man — but they broke the deal. They can't do that, so they'll be paying.” The U.S. filed the papers to impose tariffs on $200 billion of Chinese goods. Talks begin again today with China but as Trump said last night, he "won't back down until China stops cheating our workers and stealing our jobs."
Nick Cunningham at OilPrice.com writes that “The Biggest Catalyst in Oil Markets Is Going Unnoticed” He writes in a must read “oil prices have fallen sharply on fears of a global economic slowdown, but the markets are overlooking the possibility of a serious outage in Libya as civil war drags on. It may be hard to maintain attention to any one conflict, with so many now raging around the world. Last week, the Trump administration was all-in on Venezuela. But with the coup failing, Washington has turned its sights on Iran.”
“However, more than a month after the Libyan National Army (LNA) assaulted Tripoli, defying the UN and the international community, the fighting continues. The head of the militia, Khalifa Haftar, had hoped for a swift conquest, but instead has run into a stalemate. “Despite the advantage of access to high-tech munitions seemingly supplied in violation of the UN arms embargo on Libya, the LNA does not seem to have the strategy, logistics or manpower sufficient to defeat the GNA and the various western-Libya militia that are supporting it against Haftar,” Standard Chartered (LON:STAN) wrote in a report. The GNA refers to the Government of National Accord, the internationally recognized government in Tripoli. As of now, the humanitarian crisis is growing worse. Hundreds of people have been killed and more than 60,000 have fled. The World Health Organization is sounding the alarm on a shortage of medical supplies, and the potential for a cholera outbreak as violence continues in the country.” Check it out.
The EIA reported a long awaited 3.963-million-barrel drawdown in crude supply This is very bullish because it came as refinery utilization fell -0.3 ppt vs est. +0.5 ppt. That means that when refineries start really kicking it into high gear, we will see substantial oil draws in the coming weeks. They are going to have to as gasoline demand is strong, and supply keeps falling. The EIA reported that gasoline fell by 596,000 barrels and distillates by 159,000 barrels. So, in other words we believe that the supply risks at this time should overcome all the economic worries. That means higher prices ahead.