The Energy Report 07/01/19

Dealing and Wheeling

Oil and global stock markets are flying as the U.S. and China are back at the table, and it appears that OPEC plus Russia will agree to extend OPEC production cuts for 6 to 9 months.

Forget Friday’s disappointment and late session selloff on news that Saudi Arabia squashed some hopes that OPEC plus one would make a bigger cut. Or the other bearish headline flash that the EU’s Channel for Iran to do financial deals was fully operational.

The Saudis instead called for better compliance from Iraq and Nigeria. They also acknowledged that an additional cut would basically fall on their shoulders. That is something they do not want because already the Kingdom, along with the rest of OPEC, is losing market share. Bloomberg News says that its share of the oil market is all but certain to drop below 30% for the first time since 1991, according to Bloomberg News calculations.

Oil was also hit on Friday as it was feared that Iran would find a way to sell its oil despite U.S. sanctions. China agreed to buy Iranian oil and Europe said that its banking back channel for Iran to fund their international deals was fully operational. This raised fears that we would see a flood of Iranian oil.

Still the EU can’t force people to buy Iranian oil. Most traders and companies must treat Iranian oil the same way Superman has to treat kryptonite. They do not want to get on the wrong side of the United States. In the meantime, Iran say it wants assurances that they can sell the same amount of oil or will go ahead and break their deal with the EU and exceed uranium enrichment quotas.

Reuters reports that “The Europeans say breach of the agreement by Iran would escalate confrontation at a time when Tehran and Washington are at risk of a miscalculation that could trigger a war. Iran’s envoy, Deputy Foreign Minister Abbas Araqchi, said the talks were “a step forward, but it is still not enough and not meeting Iran’s expectations.” He said it was ultimately up to his superiors in Tehran to decide whether to call off plans to exceed limits in the nuclear deal, but he did not believe the talks’ outcome was likely to change their minds.”

Reuters is reporting that Iran will soon exceed an enriched uranium limit under its nuclear deal, after remaining signatories to the pact fell short of Tehran’s demands to be shielded from U.S. sanctions, the semi-official Fars news agency cited an “informed source” as saying.

Iran’s envoy to a meeting of the remaining signatories to the 2015 nuclear accord said on Friday that European countries had offered too little at last-ditch talks to persuade Tehran to back off from its plans to breach limits imposed by the deal. “As the commission meeting in Vienna could not satisfy Iran’s just demands … Iran is determined to cut it commitments to the deal and the 300 kg enriched uranium limit will be soon breached,” the unnamed source said, according to Fars.

But what does that matter if the U.S. and China are talking. President Trump gave in on its Huawei total ban and said that U.S. companies would once again be allowed to trade with Huawei. That brought China back to the table. While some are criticizing the President for this, the markets are loving it.

Still, “The Wall Street Journal” writes “President Trump and President Xi Jinping of China managed to get trade talks back on track this past weekend, but an even tougher job lies ahead—appeasing hard-liner factions within their own governments demanding they give no quarter. Mr. Xi faces party leaders and executives of state-owned enterprises who believe Washington is out to demolish the government-led economic model that is responsible for China’s emergence as a global power and U.S. rival.”

“Mr. Trump, for his part, faces skepticism from some Republican and Democratic lawmakers who worry he will give up too much in any deal, as well as wariness among some of his own appointees. Heading into an election year, Mr. Trump must also contend with restiveness among his supporters in the business community and farm-belt states who have been hit by the tariffs imposed by both countries.”

Record gasoline demand ahead. AAA says that almost two million more travelers than a year ago are planning July 4 trips. AAA says that a record 48.9 million people are making plans to travel, the most since AAA began tracking holiday travel in 2000. AAA says that overall travel volume will rise 4.1 percent compared to last year, with an additional 1.9 million people planning road trips and other vacations. They expect a record-high number of motorists, 41.4 million.

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Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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