Trade Skepticism Clouds Markets
December 3, 2019
The market is trading lower after President Trump said there may be delays in the trade deal with China. President Trump said the legislation supporting protesters in Hong Kong did not make trade negotiations with China easier but added that he believes China still wants a deal with the US. US trade representative are still saying a deal with China is possible by the end of the year, but the market is a bit skeptical right now.
Iran’s Vice President, Eshaq Jahangiri, said Iran is still selling its oil despite US sanctions on Iran’s exports, adding that they US’ “maximum pressure” on Iran had failed. He said, “they have failed to bring our oil exports to zero as planned.”
US oil producers could increase their daily output by 1 million barrels next year, or by as little as 100,000 barrels, with the large difference creating uncertainty as OPEC officials gather later this week to consider their output policy. The outlook for 2020 comes with growing skepticism from those inside the industry and should growth fall short, it could shift the balance of power in world supply back to OPEC. The IEA said an increase in US crude output by 1 million bpd would satisfy nearly all of the 1.2 million bpd increase in world demand next year. That would keep a lid on prices, pressure on OPEC to extend production cuts and leave shale producers still trying to achieve profits. As a result, most industry executives and consultants said they expect slower US shale growth. The cuts, however, have only slowed US crude production gains, not halted them. Energy researchers HIS Market and Wood Mackenzie separately put gains at 440,000 and 450,000 bpd while Goldman Sachs estimates a gain of 600,000 bpd.
Bloomberg reported on Friday that Saudi Arabia said they were no longer willing to compensate for other members that were producing above their output quotas. This helped pressure the market lower on Friday. Yesterday the Saudis were out pushing for all members of OPEC+ to agree to another 400,000 bpd reduction in combined production. This is likely just a lot of posturing as the OPEC meeting is around the corner. There will likely be more headlines and comments in the next few days as the OPEC meeting takes place on Thursday and Friday.
The trade dispute between the US and European Union is also now heating up. France put in a new digital services tax which the US said will hurt US technology companies. The US has said they may now out up to a 100% tariff on some French imports. French officials have said their tax does not discriminate against US companies. All of this is just more uncertainty to add to the mix for the market which is likely to continue to congest and be volatile until some clarity emerges.