David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Musings from the Oil Patch January 23rd 2019

    Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:

    China Is Said to Offer Path to Eliminate U.S. Trade Imbalance

    This article from Bloomberg News may be of interest to subscribers. Here is a section:

    China has offered to go on a six-year buying spree to ramp up imports from the U.S., in a move that would reconfigure the relationship between the world’s two largest economies, according to officials familiar with the negotiations.

    By increasing annual goods imports from the U.S. by a combined value of more than $1 trillion, China would seek to reduce its trade surplus -- which last year stood at $323 billion -- to zero by 2024, one of the people said. The officials asked not to be named as the discussions aren’t public.

    The offer, made during talks in Beijing earlier this month, was met with skepticism by U.S. negotiators who nonetheless asked the Chinese to do even better, demanding that the imbalance be cleared in the next two years, the people said.

    Economists who’ve studied the trade relationship argue it would be hard to eliminate the gap, which they say is sustained in large part by U.S. demand for Chinese products.

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    Outlook for 2019: The Game Has Changed

    Thanks to a subscriber for this report from KKR which may be of interest to subscribes. Here is a section:

    Oil Set for Biggest Weekly Gain Since 2016 on Saudi Supply Cut

    This article by Grant Smith for Bloomberg may be of interest to subscribers. Here is a section:

    “Underpinning this wave of buying is mounting evidence that Saudi Arabia has taken an axe to its oil production,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. Oil’s positive start to 2019 follows its worst quarter in four years and a 20 percent annual loss driven by panic over a growing glut of crude. While OPEC’s output plunged by the most in almost two years last month and producers have pledged to curb supplies through the first half of 2019, concerns about oversupply prevail as stockpiles at America’s main storage hub show signs of swelling.

    And

    The majority of oil executives surveyed by the Dallas Fed are still planning to boost spending in the next year, even after a plunge in prices. Saudi Arabia raised pricing for most crude grades to Asia and for all blends to buyers in the U.S. for delivery in February as the world’s biggest exporter cuts output to clear a global oil glut. As the new year begins, the oil market looks set to be dominated by big shifts in production. A few months ago, investors were struggling to comprehend just how much cash the largest oil companies were about to dump on them. Those mountains of money have now been reduced to mere hills.

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    Will Winter of Discontent Make Summer of Slowdown?

    Thanks to a subscriber for this report from Douglas Porter for BMO focusing on the Canadian market. Here is a section:

    In normal times, it’s Canada’s turn to shine at this later stage in the cycle—typically benefitting from rising commodity prices and still-solid global growth. But the TSX was bludgeoned this year (down double-digits) by trade tensions, a housing slowdown and weak domestic oil prices. Next year’s growth outlook is dulled by oil production cuts, slower U.S. spending, slipping auto sales and the overhang of record consumer debt. Providing a mild offset will be the new LNG project, mildly stimulative fiscal policy in the lead-up to the October federal election, as well as (presumably) some certainty on the North American trade front. But with the big interest-sensitive sectors still gearing lower, we look for 2019 Canadian GDP growth to simmer down to a 1.8% pace following this year’s as-expected 2.1% advance. With population growth recently clocking in at 1.4% y/y, this points to quite modest per capita gains.

    Even this more restrained GDP growth will tighten the labour market further, producing the lowest unemployment rate seen in Canada since the early 1970s. This will be the key ingredient convincing the Bank of Canada to tighten further in 2019, tempered somewhat by Governor Poloz’s view that there is still some hidden slack in job markets—surprisingly sluggish wage growth recently lends serious credence to that opinion. Overall, we look for the Bank to hike rates two times (50 bps) in 2019, following a year when policy actually met expectations to a T. Curiously, 10- and 30year Canadian bond yields are now only slightly above year-ago levels, and the GoC curve is even flatter than the flat Treasury curve; bonds clearly expect cooler Canadian growth next year as well. That view also appears to be built into the Canadian dollar, which spent most of the year on the defensive amid trade tensions and wobbly WCS prices. We look for only a mild recovery in 2019 for the loonie amid firmer oil prices and if/when the USMCA is ratified.  

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    9 Grey Swans for 2019

    Thanks to a subscriber for this report from Nomura which may be of interest to subscribers. Here is a section:

    Indian Stock Market Leapfrogs Germany's as Economy Booms

    This article by Srinivasan Sivabalan for Bloomberg may be of interest to subscribers. Here is a section:

    India’s ascent on the global stage has claimed another victory after its stock market overtook Germany to become the seventh largest in the world.

    The Asian giant edged past the equity market of Europe’s largest economy for the first time in seven years, according to data compiled by Bloomberg. That means, after the U.K. leaves the European Union in March, the bloc would have only one country -- France -- among the seven biggest markets.

    The move reflects India’s positive returns this year as companies’ reliance on domestic demand enabled them to avoid the meltdown in other emerging markets spurred by Federal Reserve tightening and a trade war between the U.S. and China. It also highlights the challenges facing the EU, including its future relationship with the U.K., a standoff with Italy over budget allocations and separatist clashes in Spain.
     

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    Oil Crashes to 1-Year Low as Dark Clouds Envelop Demand Outlook

    This article by Alex Nussbaum for Bloomberg may be of interest to subscribers. Here is a section: 

    “Oil has gotten caught up in all the panic you’re seeing,” said Bill O’Grady, chief market strategist at Confluence Investment Management LLC in St. Louis. “This is all about fears of a recession. It’s risk-off everywhere.”

    A U.S. government report Monday forecast surging shale-oil production, adding to worries about a glut. In Moscow, Russian Energy Minister Alexander Novak said production is rising, although the country is preparing to implement output curbs to conform with an OPEC+ accord.

    Crude’s mired in a bear market amid growing skepticism that cuts by the Organization of Petroleum Exporting Countries and its allies will be deep enough to prevent a surplus in 2019. The group’s efforts to balance the market have been undermined by the relentless growth in U.S. shale, which veteran crude trader Andy Hall said is making it harder to predict global supplies.

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    Platinum price gets $6 billion shot in the arm

    This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

    Korean carmaker Hyundai on Tuesday announced a $6.7 billion program to raise production of fuel cells 200-fold going from 3,000 this year to 700,000 per annum by 2030.

    The hydrogen society is probably further into the future than its promoters want you to believe, and detractors are plentiful 

    Toyota was the first to back the technology for passenger vehicles, launching its Mirai – "future" in Japanese – back in 2015. Honda is bringing the Clarity back to its line-up and Hyundai’s Nexo SUV is launching in North America next year. Hyundai also inked a collaboration on fuel cells with Volkswagen in June.

    The hydrogen society is probably further into the future than its promoters want you to believe, and detractors are plentiful. (Elon Musk was not only talking his book when he called fuel cell cars "extremely silly".)

    Alongside Hyundai's announcement, the Korean government also made a commitment to roll out a fuel cell fleet and charging stations. But Canada, for example, got its first and so far only public hydrogen fuelling station only in August and California’s years long backing for fuel cell cars have hardly moved the needle on consumer and business uptake.

    Nevertheless, the impact on platinum could be enormous.

    There’s a simple reason – today's fuel cell cars need a full ounce of platinum versus a 2 – 4 grams PGM loading for your average gasoline (primarily palladium) or diesel vehicle.

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