Friday,
May 17, 2019 07:45 PM / By Tom Kool Editor, Oilprice.com
The escalating trade war
between the U.S. and China is keeping oil prices subdued, but the fear premium
seems to be growing by the day as tensions across the Middle East threaten
outages and even war.


Friday, May 17th, 2019
Oil rose on Friday morning on supply outages and Middle East tensions before
trade war fears dragged prices down again. Sentiment continues to swing between
fears of weak demand in the wake of the U.S.-China trade war and fears of
supply outages due to conflict in the Middle East.
Trump blacklists Huawei, deepening rift. On
Thursday, President Trump essentially blacklisted Chinese telecom giant Huawei
Technologies from operating in the U.S., escalating the standoff with China.
The Chinese government typically offered a cautious tone in response to trade
actions from Washington, but Beijing and state media are taking an increasingly strident line, which suggests China is not close to backing
down. China’s currency slid on the news, as did the Shanghai Composite
Index.
Stalemate in Libya could cause the next oil outage. The
assault on Tripoli by the Libyan National Army (LNA) has fallen into a
stalemate, and the ongoing fighting shows no sign of nearing resolution,
despite calls for a ceasefire by global powers. The protracted battle increases the odds of an outage.
IEA: Oil market sending mixed messages. The
IEA downgraded its demand estimate for 2019 by 90,000 bpd, as a result of an
unexpectedly oversupplied first quarter. But supply outages threaten to take
production offline. As a result, the oil market is giving off “mixed signals,” the agency said.
Trump wary of war with Iran. After about two
weeks of rapid escalation in tension between the U.S. and Iran, there could be
de-escalation attempts in the offing. President Trump may be putting on the brakes, in part because of the potential political fallout at home.
Trump met with Swiss President Ueli Maurer on Thursday. The Swiss have acted as
a backchannel for U.S.-Iran talks in the past, which raised speculation that
the White House might be trying to dial down the tension.
No increased threat seen in Iraq, despite U.S. embassy
withdrawal. Royal Dutch Shell (NYSE: RDS.A) said
on Thursday that it was monitoring the security situation in Iraq after the
U.S. pulled out embassy staff in Baghdad due to an alleged threat from Iran.
Shell, ExxonMobil (NYSE: XOM), BP (NYSE:
BP) and others are operating as usual. The decision to
remove some workers “appears to be a political decision” Niamh McBurney, head
of MENA for global risk analysis firm Verisk Maplecroft, told Platts in
an email Thursday.
Russia hints at OPEC+ deal. As the OPEC+
coalition meets this weekend to take stock of the oil market and assess its
next steps, Russia reportedly wants
to propose a production increase, perhaps by as much as 300,000 bpd. No action
is expected until the official meeting in June, but Russia has repeatedly
signaled its desire to loosen the production curtailments.
Internal combustion engine already peaked. “Sales
of internal combustion passenger vehicles have already peaked,” Bloomberg New
Energy Finance said in
a recent report. Electric vehicles are growing from a small base, but they are accounting
for nearly all of the growth in auto sales. EVs will reach price parity with
the internal combustion engine by the mid-2020s, BloombergNEF said.
California threatens ban on internal combustion engines. The
Trump administration is trying to strip California of its authority to set fuel
emissions standards for cars. In response, California is threatening to ban the
internal combustion engine altogether. “If we lose the state vehicle standards,
we have to fill up the gap with other measures,” California Air Resources Board
Chairman Mary Nichols said on
Thursday. “We will be faced with dramatic alternatives in terms of tighter,
stricter controls on everything else, including movement of vehicles and
potentially looking at things like fees and taxes and bans on certain types of
vehicles and products.”
Iranian tanker unloads in China. In a sign
that China is willing to violate U.S. sanctions on Iran, an oil tanker docked
in China and unloaded Iranian fuel oil, according to Reuters.
Another tainted Russian cargo loaded. Another
tainted load of Russian oil was loaded from a port on the Baltic Sea, evidence
that the contamination crisis is not over. “Traders receiving Urals crude at
the Ust-Luga terminal said some oil continues to exceed acceptable levels of
organic chloride, the contaminant blamed for major disruption to the nation’s
exports since last month,” Bloomberg News reported.
WTL supply increases to 500,000 bpd. Permian
producers began separating out ultralight oil from West Texas Intermediate
(WTI) last year, starting up a new blend called West Texas Light (WTL). Supply
of WTL has climbed to 500,000 bpd, according to Bloomberg,
a four-fold increase from last year. Most of it will be exported since
refineries along the Gulf Coast are better equipped to handle medium and heavy
blends.
Attacks on Saudi tankers could raise costs. The
recent attacks on Saudi oil tankers near the Persian Gulf could increase the
cost of insurance and security, which may ultimately push up oil prices,
according to the Wall Street Journal. “It’s a new threat,” Mark Gray, founder of U.K.-based MNG
Maritime, which protects shipping traffic, told the WSJ. “The instinct of
insurance companies will be to increase prices.”
Mozambique gives greenlight to Exxon LNG project. Mozambique authorized ExxonMobil’s (NYSE:
XOM) and Eni’s
(NYSE: E) LNG export project.

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