-US-Chinese trade war to resume
-Saudi flotilla threatens to reverse US oil storage trends
Technically, crude oil prices are showing a rebound in global demand. The contango structure, where the futures contract is priced higher than the spot price, is tightening, signaling oversupply concerns are fading. An examination of US road traffic shows increased mobility and Chinese refineries are showing an uptick in runs. Dozens of tankers laden with Saudi crude oil, however, could upend the US market. Globally, the politicization of the pandemic response suggests the United States and China are on the cusp of a second phase of economic war.
The price for Brent crude oil was up 1.93% as of 8 a.m. ET to trade at $31.73 per barrel, coming off a 6% rally in the previous session. The futures market shows the spread between Brent in the July contact and six months out is shrinking, indicating supply-side strains are fading.
The US Energy Information Administration reported a 700,000 barrel drain on commercial crude oil inventories last week, easing concerns the storage hub in Cushing could overflow. With some states easing lockdowns, total motor gasoline inventories decreased by 3.5 million barrels. In terms of consumer behavior, data provider Kayrros found that non-commercial vehicle traffic in major US metropolitan areas is on the rise. Stocks of refined products in the Amsterdam-Rotterdam-Antwerp hub dropped in kind. And calendar spreads are shrinking in response, suggesting the rare price reversion into negative territory last month was a market anomaly more than a genuine sign of overflowing storage.
But storage in the US market is under threat from a flotilla of tankers laden with Saudi crude oil. Some 50 million barrels of Saudi crude could renew the threat to storage tanks. Sandy Fielden, the director of oil products research at Morningstar, told Bloomberg news the Saudi fleet could push storage levels to the brim.
“If the shipments land at a rate that isn’t balanced by falling production or an uptick in exports, then we’ll see a domestic build,” he said.
John Kemp at Reuters added a caveat in his daily newsletter, however, by observing that if the oil stays offshore, it will be “invisible” in terms of official US data. That said, the arrival may be one of the parting shots in the OPEC+ fight against shale.
In war of a different sorts, just as the removal of a dictator releases pent up aggression in democratizing states, the curve-flatting in the coronavirus pandemic is creating space for politicization of the crisis. The US administration has been adamant with its position that the coronavirus outbreak stems from a China question. Citing national security concerns, the US Commerce Department on Friday announced it would block shipments of semiconductors from chipmakers to Huawei, firing a shot across the Chinese trade bow. That prompted a warning from Hu Xijin, the editor in chief for China’s Global Times, that major US companies could find themselves in the crosshairs.
“If the US further blocks key technology supply to Huawei, China will activate the “unreliable entity list”, restrict or investigate US companies such as Qualcomm, Cisco and Apple, and suspend the purchase of Boeing airplanes,” he posted on Twitter.
With global GDP readings in swift retreat, a resumption of the US-Chinese trade war during a pandemic could have devastating economic consequences.