US and China Strike Partial Trade Deal
October 14th, 2019
The market was up at the start of the day on Friday as the news hit that an Iranian tanker had been hit by missiles. The details were sketchy and still are a bit unclear but for now the market seems to have made its reaction to it and is now on to other matters.
The news of the US and China trade deal is the current news impacting the energy markets. Friday the news was good that a deal had been agreed to and now the details would be worked out and finalized. Over the weekend China appears to have pulled back on this and just created more uncertainty. China had agreed to buying up to $50 billion in agricultural goods and the US will delay the new tariffs that were supposed to be put in place tomorrow. Treasury Secretary, Steven Mnuchin appeared on CNBC this morning and gave a good recap of the progress that has been made and the general principles or topics covered by the agreement. Some of the items mentioned were; intellectual property right protection, exchange rates, financial services, trade cooperation, technology transfer and a dispute settlement process.
The China and US deal or no deal on trade and the delayed tariffs is being seen as good news by the energy market so far today as prices are pulling back off the recent highs. We will all just have to wait and see how things progress on this front and if real progress looks like it is being made or we are in for more of the same.
There is a lot of comments about the steep increase in freight rates for shipping crude oil around the globe as a result of more US sanctions. From a Reuters article they say nearly 300 oil tankers globally have been placed off limits as companies fear violating US sanctions. The move has taken roughly 3% of the global oil tankers fleet out of the market, according to industry sources and data on Refinitiv Eikon, sending rates soaring to secure tankers to ship oil, particularly to Asian. The cost of sending a VLCC (Very large Crude Carrier) from the US Gulf Coast to South Korea, Asia’s top buyer of US oil, hit a record $14 million this week. The record shipping rates and a narrowing of the Brent Crude Oil to WTI Crude Oil spread have shut the arbitrage window for US crude to Asia.
From Reuters report John Kemp; by early last week, hedge fund had become the most bearish toward petroleum prices since the start of the year, as traders grew increasingly pessimistic about the global economy. Hedge funds and other money managers sold the equivalent of 95 million barrels in the six most important futures and options contracts tied to petroleum prices in the week to October 8.