The Energy Report 02/08/19
Oil prices were already under a bit of pressure on news that a Libyan General seized Libya’s largest oil field and weak economic projections out of Europe but fell out of bed after an interview with National Economic Council Director Larry Kudlow on Varney and Company on the Fox Business Network. Stuart Varney asked Kudlow whether he had any news on a potential meeting between China’s Xi Jinping and President Donald Trump, the answer sent stocks falling and oil along with it. Kudlow told Varney that looking down the road that a meeting could take place and that the President was optimistic about a deal “but, but, but, but, but, but,” ( I think there were 6 buts)“We’ve got a pretty sizable distance to go here,” Kudlow went on “To quote a colleague of mine – ‘we have miles to go before we sleep.’” He shook up the market by saying they had pretty sizable distance before reaching an agreement. Kudlow also confirmed that U.S. beef was far superior to Chinese beef, which is good to know.
Stuart Varney trying to find out how close they were to a deal asked whether “they’re putting it down on paper?” Kudlow said U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin’s next trip to Beijing still may not result in some of the agreement even being drafted. “When those two gentlemen, they are very experienced folks, when they get there, we’ll see. At the moment we have not had the papering of any of these discussions. So, as I say, they’re going to be probing and continuing conversations, and that the talks had a good vibe to them.”
So, the trade freaked out thinking that the optimism about a trade deal might be all for naught. There were also reports that President Trump said he did not plan to meet President Xi Jinping before the March 1 deadline for a deal when additional U.S. tariffs on Chinese imports are scheduled to be imposed on March 2. Yet if you really have followed this up and down story on U.S. China trade, this is par for the course. President Trump and Larry Kudlow are putting on the full court press to keep pressure on the Chinese, so they come to some kind of deal. And it is not just the Trump Administration that is putting the pressure on but business leaders as well.
The Wall Street Journal reports that “From Stephen Schwarzman to Hank Paulson, top business figures are worried about the consequences of failure in talks before a March deadline.” The Journal writes in a must read that “Among those pushing for a deal is Blackstone Group Chief Executive Stephen Schwarzman, who has been phoning Mr. Trump and his senior advisers to warn that the failure to strike a deal will undermine the economy and roil markets, which are anticipating an end to U.S.-China economic hostilities. Uncertainty about China is weighing on business investment and consumer confidence, Mr. Schwarzman and others are arguing, people familiar with the conversations say. At the same time, Mr. Schwarzman and other business leaders, including former Treasury Secretary Hank Paulson, are urging senior Chinese officials to make enough concessions to U.S. negotiators to allow Mr. Trump to claim a victory. That includes agreeing to a way the U.S. can enforce the deal should China fall short of its commitments.”
Rig count and the reverse head and shoulders is the other things to talk about in this market. Oil looks to be testing the bottom end of the right shoulder, and for all of you Elliot Wave fans out there, this may be the bottom of the wave that you all have been waiting for. Yet really, in oil, we are being driven by headlines that seem to have more sway before we begin the long journey into seasonal maintenance. Concerns about demand and rising U.S. production are the bearish factors.
Bullish factors for oil are OPEC cuts as well as the ongoing problems in Venezuela. Oil Price reports that “France’s oil and gas major Total has pulled out all its personnel from Venezuela following the U.S. sanctions on Venezuelan state oil firm PDVSA, which also blocked Total’s accounts in the Latin American country, CEO Patrick Pouyanné said on Thursday. Total’s accounts have been blocked due to U.S. decisions, AFP quoted Pouyanné as saying at the presentation of the group’s 2018 financials. “The other practical problem is that, given the sanctions, we should no longer manage Venezuela from the United States… but from Europe,” the manager said, noting that Total of course will be complying with the U.S. sanctions and has put its Venezuelan operations in a “hibernation mode.” As of 2017, Total had around 50 employees in Venezuela, according to the group’s website. The French group first began exploration in Venezuela back in 1980 and has been active in the exploration and production of extra-heavy crude oil and natural gas in the Latin American country.
I guess it was not cold enough to get a bullish natural gas number because of record U.S. production. Maybe if we hit 100 below. The Energy Information Administration reported that working gas in storage fell 237 Bcf from the previous week. Stocks were 135 Bcf less than last year currently and 415 Bcf below the five-year average of 2,375 Bcf. At 1,960 Bcf, total working gas is within the five-year historical range.
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The PRICE Futures Group
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network