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Phil Flynn

Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665

Oil did a pump and dump after it was announced that Saudi Arabia raised oil production to an all-time high in November, pumping 11.1 million to 11.3 million barrels per day (bpd). Yet, oil rebounded because it is just not about production but also oil exports that the Saudis are signaling will be falling sharply. The talk is that Saudi Arabia is already reducing oil exports and engineering a 1.5-million-barrel oil a day production cut, along with Russia and other OPEC nation conspirators. The Saudis usually raise output before a production cut just to remind its partners of its production capabilities. On top of that, oil in Saudi storage reportedly was at a 10-year low, so some of that extra oil may go to refilling their own coffers.

Today, oil is trying for a second day higher, still reeling from the “black and blue Friday” that was the biggest one day sell off in 3 years. It will have to overcome fears of more sanctions on China and of course the ongoing risk of a Presidential tweet. Geopolitical risk factors are heating up. Ukraine’s parliament has agreed to impose martial law in 10 of its provinces to combat “growing aggression from Russia,” after a weekend confrontation in waters off the disputed Crimean Peninsula led Russia to seize three Ukrainian navy vessels according to the AP. The Russian Foreign Ministry issued a statement on Monday with a “warning” to Ukraine that naval conflict in the Sea of Azov and the Black Sea “is fraught with serious consequences.” Sunday’s incident occurred as the Ukrainian navy ships, including a tugboat, tried to pass through the Kerch Strait, a strategic waterway that separates the Black Sea and the Sea of Azov. A newly built Russian bridge opened by Putin himself now spans the strait, which Moscow hopes will solidify its claim to adjoining Crimea, the Ukrainian peninsula it forcibly annexed in 2014, according to NPR.

Trump is talking tough with China, either get a deal before the G20, Nov. 30 and Dec. 1,  or face more sanctions. The Wall Street Journal reported that President Trump, days before a summit with China’s leader, said he expects to move ahead with boosting tariff levels on $200 billion of Chinese goods to 25%, calling it “highly unlikely” that he would accept Beijing’s request to hold off on the increase. In an interview with The Wall Street Journal, Mr. Trump suggested that if negotiations don’t produce a favorable outcome for the U.S., he would also put tariffs on the rest of Chinese imports that are currently not subject to duties. “If we don’t make a deal, then I’m going to put the $267 billion additional on at a tariff rate of either 10% or 25%,” Mr. Trump said. He first threatened those duties, and the higher tariffs on the initial $200 billion in goods, in late summer.

Venezuela got a $9 million-aid package from the U.N. to avoid a humanitarian crisis, but also it seems that Venezuela is not doing anything to help itself. Venezuelan President Maduro continues to consolidate power and wealth while he allows his people to starve and lack medicines and basic human needs. Funding from the U.N.’s Central Emergency Response Fund will go toward providing food, medicine and other help to Venezuelans as the country’s economic woes continue. This marks the first time Venezuelan President Nicolás Maduro has allowed this kind of emergency aid from the U.N.

Reuters reports that  Venezuela’s oil ministry last month turned down a proposal by BP (BP.L) to buy Total’s (TOTF.PA) stake in a promising but inactive natural gas project along the maritime border with Trinidad and Tobago, five people briefed on the matter said. BP owns the rights to the Trinidadian side of the gas play. It could have used the output from the neighboring area, the Deltana Platform’s fourth block off Venezuela’s eastern coast, to feed its growing operations on the island, said the people, who were not authorized to speak publicly. The rejection highlights how Venezuela’s socialist government, often hostile to foreign companies, remains an obstacle to investment even as oil majors eye the OPEC nation’s barely tapped gas reserves to expand their liquefied natural gas (LNG) portfolios. The ministry told the parties the area’s reserves needed to be re-estimated, an argument it has used to reject other deals.

Oil will get some hard data to look at when we get the American Petroleum Institute report tonight. The Report should show a 3-million-barrel drawdown as refiners are ramping up production. Strong holiday demand for fuels should also lead to a 2-million-barrel drop for both gasoline and distillate. Reports show that Genscape, the private forecaster, showed a much smaller than expected increase in Cushing Oklahoma supply.  Genscape said supply increased by only 126 barrels putting supply at 38,578,084 million barrels.
Thanks,
Phil Flynn

 

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