The Energy Report 08/07/2020

Tik Tok Drop

The stock market rally yesterday is being thwarted by the Tik-tok drop. The word that President Trump is going to Tik-Tok and other popular Chinese apps like “What’s Ap” and “We Chat” due to security concerns, is putting markets in a risk-off mode and weighing on oil prices and even cooling the red hot rally in silver and gold. The concern for oil is that a renewed U.S./China trade war may hamper economic growth and slow oil demand that is still in a recovery mode.

U.S. President Donald Trump signed two executive orders against Tik-Tok and We Chat claiming they are a national security threat. President Trump signed the order on Byte Dance to divest Tik-Tok beginning in 45 days, halting any and all the transactions with Byte Dance. Stating, “Any company still doing business with TikTok in 45 days is subject to sanctions. It may be used for disinformation campaigns that benefit the Chinese Communist Party. “The US must take aggressive action against the owners of TikTok to protect our national security.”

The drop in stocks come before an important U.S. jobs report that is even bigger as the Democrats and Republicans reportedly are still far apart on a cornavirus relief bill. President Trump is expected to sign an executive order on that. The President tweeted that, “Upon departing the Oval Office for Ohio, I’ve notified my staff to continue working on an Executive Order with respect to Payroll Tax Cut, Eviction Protections, Unemployment Extensions, and Student Loan Repayment Options.” If the jobs report then comes out with some optimism, the concerns about Tic-Tok ban could go away.

There are reports that the Turkish Foreign Minister Mevlut Cavusoglu, is warning that Tripoli forces will launch a delayed offensive towards eastern oil fields in Libya unless Field Marshal Khalifa Haftar, commander of the Tobruk-based Libyan National Army, vacates oil fields. Haftar has been strengthening defenses, with Russian collusion, I mean mercenaries, at key Libyan oil ports. Egypt also is also threatening intervention if a “red line” is crossed. The U.S. is trying to mediate a solution. Stay-tuned.

Promises, promises. Iraq promises to cut output by 400,00 barrels a day to atone for past sins. The market so far does not believe it. Oil Minister Ihsan Abdul Jabbar promised that Iraq will cut oil production by an extra 400,000 barrels a day in August and September, over and above the previous promise to cut by 850,000 barrels a day. Oil is still trying to break out but failed twice to hold onto gains. With the overnight pop on silver and gold and subsequent Tik-Tok corrective drop, it will make it harder for oil to rally unless the stock market rebounds after the jobs report. The U.S. oil rig count is expected to fall again and U.S. oil production is still trending lower.

Chinese slowed oil imports after hitting a record previously. Bloomberg reports that, “Several Asian refiners struggling with weakening demand will ask Saudi Arabia for less crude next month after the kingdom cut official selling prices by a smaller amount than the processors had been hoping for. At least three buyers are planning to request less oil from Saudi Aramco for September, according to company officials with knowledge of their crude procurement. Three others expressed disappointment at the size of the cut — the first reduction in four months — but will seek normal volumes, said the people who asked not to be identified as the information is private.

Tsvetana Paraskova of Oil Price dot com reports that Global LNG demand is going to recover. “The world’s consumption of natural gas is set to decline by 4 percent this year, but global demand will return to growth after the pandemic, thanks to low natural gas prices and stricter environmental policies, a new report showed on Thursday. The Global Gas Report 2020 – published by the International Gas Union (IGU), research company Bloomberg NEF (BNEF), and Italian gas infrastructure firm Snam – says that the trend of increased natural gas demand due to environmental concerns, which was already underway before the pandemic, will continue after COVID-19 is under control. 

The International Energy Agency (IEA) also sees global natural gas demand dropping by 4 percent in 2020, which would be the largest demand shock for gas markets in recorded history, with consumption of natural gas expected to drop by twice the amount it did after the 2008 financial crisis. The cost-competitiveness of natural gas and the increased access to gas in developing countries are set to be the key drivers of higher gas demand in the medium term, especially for liquefied natural gas (LNG), the Global Gas Report 2020 found. Global LNG imports could return to their 2019 level quickly, as soon as in 2021, depending on the persistence and longevity of the pandemic. “The pandemic has created disruption in the global energy sector, but low gas prices will ultimately stimulate demand growth as the economy recovers. We have already seen unprecedented coal-to-gas switching in Europe, and clean air policies in major growth markets such as India and China will drive more gas adoption in the next few years,” said Ashish Sethia, global head of commodities at BNEF. For the longer term, however, low-carbon gas technologies would be needed, but they will depend on significant investments and policy actions, the report said. “It is increasingly clear that the goals of the Paris Agreement cannot be met without a substantial scale-up of clean gas technologies – such as hydrogen,” Jon Moore, CEO of BNEF, said. “While the economics are challenging today, a joined-up policy approach could unleash the investment needed to bring costs down, develop scalable business models and drive adoption across the hard-to-abate sectors.”

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