US & China Involved in Maritime Dispute
July 14th, 2020
The news started out yesterday about the potential for a vaccine for the virus and this had equities higher and energy along with it. Any news about a vaccine is seen as a positive but I think the hard reality is that in a best case scenario it is likely many months away. Then later in the day the news hit that California governor had ordered the closing of bars, restaurants, movie theaters, zoos, and museums in 30 countries with rising COVID-19 cases. Also reported was that Los Angeles and San Diego schools will start online. This confirms the markets cautiousness as the virus could again decrease demand and economic recovery. There have been some reports that Houston is also getting close to shutting down as cases rise there. Oregon has also banned most gatherings of 10 people or more.
The Wall Street Journal said the Saudi Arabia is leading the OPEC+ oil producers’ group to ease oil output cuts from the agreed upon 9.7 million bpd down to 7.7 million bpd starting in August. This is what the market expects, and it put some downside pressure on prices yesterday as that mean more oil is coming on the market and adding to the already large inventories.
Morgan Stanley raised its third quarter Brent price forecast to $40 per barrel from $35 per barrel. It also raised its WTI price forecast for the third quarter from $32.50 per barrel to $37 per barrel. It stated that oil demand is improving but remains fragile and is unlikely to exceed pre-COVID-19 levels unit late 2021.
According to the EIA productivity report, US total shale regions oil production in August was seen down about 56,000 bpd at 7.49 million bpd, compared with a decline of 55,000 bpd in July. US Bakken oil production for August is seen up 18,000 bpd at 1.113 million bpd, compared with a 77,000 bpd increase in July. US Eagle Ford oil production for August is seen down 23,000 bpd at 1.106 million bpd, while US Permian Basin oil production for August is seen down 13,000 bpd at 4.147 million bpd.
The US rejected China’s claims over territory in the South China Sea. Secretary of State, Mike Pompeo called the actions “completely unlawful.” The actions by the US are a reversal of a previous policy of not taking sides in maritime disputes in the region. This is another sing of the tension between the US and China and continues to raise concerns about how the trade deal progresses.