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 has been on a wild ride, tanking in the overnight session off trade war fears, rejecting bear market territory to rebound on a Wall Street Journal report that both Mexico and China are ready to talk, and then a major explosion at a refinery in Cameroon. Also, it appears that some Norwegian oil unions are calling for a strike and reports that Russia is backing off its support of embattled Venezuelan President Maduro in Venezuela. Russia also finally fell below its daily OPEC agreed to target, pumping 11.11 Million barrels of oil per day, the lowest output since 2018. There is also signs that global oil supply is tightening and speculation that the Energy Information Administration may have been overstating recent crude builds due to adjustments. Saudi Arabia raised its crude price to Asia, signaling strong demand but cut prices to the U.S. and Europe. There was also a report by OilPrice.com that U.S.-led forces have blown up three oil tankers in Syria as the United States increases its pressure on Syria by thwarting the oil trade between the PKK/YPG and the Assad regime, according to local sources quoted by several media sources. A lot going on lending to big moves and giving traders who love volatility more than they could ask for.
The Wall Street Journal reported that China and Mexico both signaled a willingness to negotiate with Washington over escalating trade issues, while the Trump administration took to the airwaves to defend its use of tariffs to gain concessions from trading partners. Beijing on Sunday released a government policy paper on trade issues, accusing Washington of scuttling the negotiations, which broke down in all but name in May. It said the Trump administration’s “America First” program and use of tariffs are harming the global economy and that China wouldn’t shy away from a trade war if need be. But throughout the document and at a briefing, the government suggested a willingness to return to negotiations. “We’re willing to adopt a cooperative approach to find a solution,” Vice Commerce Secretary Wang Showmen said in Beijing on Sunday.
The Wall Street Journal also reported “Mexico is sending a big delegation to talk about the Border,” President Trump wrote on Twitter on Sunday afternoon. “Problem is, they’ve been “talking” for 25 years. We want action, not talk. They could solve the Border Crisis in one day if they so desired. Otherwise, our companies and jobs are coming back to the USA!” he said.
Oil though seems to be holding out hope of a deal, bouncing back and rejecting the 20% pullback that would have put oil in a technical bear market.
Dow Jones reported that “Crude oil processing has stopped in Cameroon after the West African nation’s National Refining Company burst into flames late Friday, sparking fears of months long fuel shortages at pumping stations. Jean-Paul Simo Njonou, the general director of the company–known as SONARA–said Saturday that an explosion followed by a serious fire occurred at the refinery on May 31 at 0830 GMT, “causing damages and halting of our production units for a period that is yet to be determined.” The country’s Communication Minister and government spokesman Rene Emmanuel Sadi said Sunday that the flames that destroyed a production unit of the refinery were caused by an electrical short-circuit. No casualties were recorded in the incident, whose cost of damage will be determined after a government investigation.”
OilPrice.com reported that “US-led forces have blown up three oil tankers in Syria as the United States increases its pressure on Syria by thwarting the oil trade between the PKK/YPG and the Assad regime, according to local sources quoted by several media sources. The strike was carried about by coalition planes, which hit three oil tankers, leaving four dead. The coalition has not yet made a statement about the attack. In the area controlled by Assad, oil consumption stands at around 136,000 bpd. Production, meanwhile, is only 24,000 barrels per day. This means that the regime must import significant volumes of crude oil at an estimated expense of more than $2 billion per year. The attack comes a couple of weeks after the EU extended its sanctions on the Assad regime for one year after the Syrian regime upped the ante in repressing the Syrian people, bringing the Syrian crisis to a boiling point. Reports surfaced weeks ago that Iran had resumed oil shipments to Syria in the wake of U.S. sanctions on the former, with a million barrels arriving in Syria from Iran on May 5. Further illicit oil shipments may be coming, as a new border crossing between Iraq and Syria is currently under construction, Fox News reported last week, based on satellite imagery revealing that construction is underway.”
Reuters reports that “Norway’s oil and gas output could be cut by about 440,000 barrels of oil equivalents per day, or about 11% of total production, if workers go on strike from June 4, industry association Norwegian Oil and Gas (NOG) said on Monday. A government-appointed mediator is leading negotiations between oil companies and employees represented by the Lederne union in a bid to avert a strike. Altogether nine fields would have to shut in the event of industrial action, NOG said in statement. Lederne members are planning to strike at Neptune Energy’s Gjoea field, Okea’s Draugen, Aker BP’s Ivar Aasen and Equinor’s Kristin, Oseberg East and Gudrun fields. In addition, production would have to shut at Equinor’s Tyrihans, as well as at the Maria and Vega fields, both operated by Wintershall DEA,” NOG said.
Oils selloff seems overdone. Trade war fears are being overstated and risks to supply seem high. U.S. inventories are going to start falling and it appears that the EIA have some explaining to do. Upward supply revisions will be reversed, and it will lead to big crude oil draws. Crude oil trading funds will start to build going into the new month. Gasoline demand will rebound.
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