When It Rains, It Pours -- Busy, Busy, Sunday Night -- September 15, 2019

End of second full day following the strike:

• except that the price of oil jumped (and to tell the truth, I don't think it jumped as much as folks thought it would), one could hardly tell anything happened in the Mideast over the weekend
• some compared it to Pearl Harbor: based on events today, the attack on Saudi Arabia compares not at all to Pearl Harbor
• egged on to do something, Trump seems relaxed, sitting back, watching; keeps his schedule; attends New Mexico rally as scheduled
• US stock market down slightly but futures are green for tomorrow
• the attack on Saudi: almost a non-event

Original Post

 

Most fascinating: to see the price of gasoline at your neighborhood service station tomorrow

• for the record, the price of unleaded regular was running $2.16 to $2.39 here in north Texas
• along the highway, higher-priced stations, here in north Texas (DFW area): $2.39
• I filled up for $2.16/gallon this morning in downtown Keller, TX, well away from the highways

Mideast on the brink. Story tracked here. There are so many story lines:

• timing of the attack
• more and more stories that Iran's economy was ready to implode due to US sanctions
• Iran announced as recently as this week that it would pursue "speedier centrifuges": Iran admits to using advanced centrifuges, violating nuclear deal
• time to "take out" Iran?
• EU's "gut check": side with Iran or side with the US 
• Iran admits it is intentionally violating the "nuclear deal"
• Saudi getting ready to announce Aramco IPO
• Israel's Netanyahu on the ropes
• Brexit
• Bolton "fired"
• new "Alfalfa" in place for just one week (the step-brother to the heir to the throne; another son of the king of Saudi Arabia)
• US 2020 presidential campaign has begun
• son of Osama bin Laden confirmed killed in Afghanistan this past week
• Trump's determination to withdraw from Afghanistan
• the decision NOT to meet with the Taliban at Camp David 
• US Federal Reserve under pressure to cut rates
• global oil market 
• attack could settle the argument: is US shale the swing producer?
• during Mideast hostilities, Saudi Arabia may not be the swing producer
• September and October (2019) production data won't be seen until December, 2019 and January, 2020
• price of oil: what pundits are saying
• even if terminal "back to normal," risk premium is now $5 - $10/bbl (forever and ever, amen)
• if terminal takes more than a week to return to normal, think $75 WTI
• if terminal takes a month to return to normal, think $100 WTI
•  military: just when you thought it was safe to reduce US troops in the Mideast 
• will Trump listen to US generals or will Trump go it alone?
• exactly who is in charge of the US military? -- quick, name the Secretary of Defense  
• US intelligence agencies
• fake news
• credibility issue
• exactly who is in charge of US intelligence? -- quick, name the new national security advisor
• geopolitics
• Saudi Arabia's response is almost a "lose-lose" proposition
• "turn the cheek" and "let it go": risks looking weak
• military response: push the Mideast into an all-out war

Rahm Emanuel: "never let a crisis go to waste." Issues that should be affected by the attack on Saudi's oil terminals and oil field

• opening Alaska to drilling
• pipelines: Keystone, DAPL, others
• US Federal Reserve decision to go rogue, or stay the course
• Bernie, Pocahontas, et al: ban fracking
• this is the time for Trump to emphasize that the Dems want to ban fracking 
• he won't get many opportunities like this

Nominee for 2019 Geico Rock Award: IEA

• IEA: "the US shale revolution has reshaped the energy landscape at home and abroad, according to latest IEA policy review"
• note: I consider the IEA an extension of OPEC, the EU, WTO, and the UN
• Nominees for the 2019 Geico Rock Award: here;
• Geico Rock Award nominees for 2018
• the winner of the 2018 Geico Rock Award: Robert Rapier 
• the IEA, as a nominee for the 2019 Geico Rock Ward --the timing of this report, that "the US shale revolution has reshaped the energy landscape at home and abroad" is simply too much -- I can't make this stuff up:
• the price of oil -- at $50 to $60 -- is an existential issue for Saudi Arabia (and, thus by extension, a huge, huge deal for the EIA)
• sanctions on Iran did not drive up the price of oil; US shale more than made up for any shortfall
• the Libyan oil story is irrelevant (as are the oil stories of several other legacy oil providers)
• Iran was about to implode
• Venezuela was about to implode (of course, we've been saying for a decade now)
• Mexico was about to implode
• the IEA statement released September 13, 2019
• the attack on Saudi Arabia: September 14, 2019; 04:00 a.m. local time

Things Moving Quickly; Abqaiq Back In The News -- September 14, 2019

Link here.

WWII mentality:

The UK’s emergency petroleum stocks will more than halve in the event of a no-deal exit from the EU, reducing the buffer of strategic reserves available in the event of severe global supply disruption.

The government would no longer require industry to hold the EU-mandated levels in the event of a hard Brexit, defaulting instead to much lower reserves stipulated by the International Energy Agency, the UK’s energy department said.

The Department for Business, Energy and Industrial Strategy told the Financial Times that EU rules require each member state to hold 61 days’ worth of consumption in reserve, which for the UK is equivalent to 11m tonnes or roughly 85m barrels. Under IEA rules, which are based on net imports, the government said the level of stocks held in reserve would drop to 4.5m tonnes or 35m barrels.

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Mideast On The Brink

Quick, before we get started: which US state is most dependent on Saudi oil? 

Abqaiq back in the news.

We talked about Abqaiq eight years ago:

June 15, 2011: Saudi oil terminal vulnerable to terrorism.

When al-Qaida suicide bombers tried on Feb. 24, 2006, to blow up Saudi Arabia's Abqaiq oil processing facility, arguably the world's most important petroleum hub, it was taken as a sign of strength that internal security had foiled the attack. Secret U.S. State Department cables obtained by WikiLeaks and shared with news organizations show otherwise. Even though 70 percent of Saudi Arabia's oil exports flow through the Abqaiq facility, Saudi security forces were woefully ill-prepared to defend it, investigations into the attack found, according to the cables.

Major export terminal on fire in Saudi Arabia. I'm amazed to hear that folks in the Mideast say this is "no big deal. Things will be back to normal by Monday."

If so, it certainly suggests that a lot of stuff at Abqaiq is absolutely unnecessary or redundant. I would assume that every cog in this machine is part of a very, very complicated enterprise. If "massive" fires are no big deal, it certainly raises a lot of questions about veracity of reports coming out of the Mideast ....

Biggest oil story of the year, and oilprice is not reporting it. Posted: 2:07 p.m. CT, September 14, 2019. [Later, 3:40 p.m. CT, I see oilprice has posted the Saudi terrorism story. The time date stamp had it at 2:30 p.m. CDT but I sure didn't see it at that time. So far, oilprice seems not to have given this story much thought.]

War! - September 14, 2019

Americans distracted by:

• college football
• back-to-school shopping
• new Apple products

We need some good analogies to help people understand how big a story this is.

Let's see if the Permian, Bakken, and Eagle Ford can respond!

My hunch: by Monday, production back to normal. [Later, okay, Wednesday.]

Quick, before we get started: which US state is most dependent on Saudi oil? California.

Let's see what twitter has to say about that:

Yes, just as I expected. But we will see. If not back on line by Monday morning, we will see a $10-spike in price.

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, career, or relationship decisions based on what you read here or what you think you may have read here.

War! Edwin Starr   *********************************************
Mideast On The Brink

Abqaiq back in the news.

We talked about Abqaiq eight years ago:

June 15, 2011: Saudi oil terminal vulnerable to terrorism.

When al-Qaida suicide bombers tried on Feb. 24, 2006, to blow up Saudi Arabia's Abqaiq oil processing facility, arguably the world's most important petroleum hub, it was taken as a sign of strength that internal security had foiled the attack. Secret U.S. State Department cables obtained by WikiLeaks and shared with news organizations show otherwise. Even though 70 percent of Saudi Arabia's oil exports flow through the Abqaiq facility, Saudi security forces were woefully ill-prepared to defend it, investigations into the attack found, according to the cables.

 

War? -- June 13, 2019

Hormuz horror: tanker torpedo attack. One of the tankers is flagged indirectly to the United States. Iran says the tanker has sunk, though other sources deny it. The other tanker was Panama-flagged. The US-tied tanker was chartered by Taiwan and was sailing from UAE.

Tracked at "Mideast on the brink."

Oh, give me a break! Does anyone really think Iran thinks these things out?

From twitter:

• US DOD: Iran "highly likely" to be behind oil tanker attacker. "Ya think?"
• strangely, tankers carrier Iranian crude oil seem immune to attacks
• the Hyundai vessel was sailing on to the UAE. Why it decided to transfer them (the sailors) to Iran is not clear at this time.
• 23 crew members on one ship; 21 on the other; the 23 were originally being moved by Hyundai Dubai 
• massive damage to starboard side of one tanker; very likely will be scuttled
• Oman security forces are near the vessels; can't yet confirm if the Front Altair is sinking (the insurance company is watching closely); vessel on fire; resources available to put the fire out? 
• Front Altair: naphtha on tanker originated from Abu Dhabi's ADNOC (and Katie McQue spelled it as "naptha")
• Kokuka: methanol on tanker originated from Saudi's Sabic and Qatar
• occurs during Japanese PM's visit: timing? awkward.
• the market just doesn't respond to supply threats like it once did.
• an alleged Iranian-supplied missile hits a civilian airport in Saudi Arabia
• two tankers torpedoed in the Strait of Hormuz
• price of oil: maybe it will go up a dollar a bbl

Hyperbole over at oilprice?

WTI, following the reports of the torpedoed tankers: up 2.76%; up $1.41; trading at $52.55. And folks are still debating whether the US is the "swing producer."

Swing producer: it's not the number of rigs, it's the number of DUCs.

Allied Forces Take Out Storage Tanks In Syria To Enforce Oil Embargo -- May 31, 2019

A "war" we don't hear much about:

• May 31, 2019, allied aircraft take out storage tankers, oilprice.
• May 3, 2019, Syria scrambling, AP News.  
• April 25, 2019, Damascus, misery, Bloomberg.
• Back on March 22, 2019, another incident in which oil to Syria was turned back; in The Wall Street Journal.

I'm sure Iran is watching.

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"Fed" Watch

Reminder: when the China trade war began, there were stories that as bad as this would be for the US, it would be worse for the Chinese. Some suggested the China-US trade war would end when Chinese bankers started jumping out of windows. Hold that thought.

Now, from zerohedge comes this: US banks and the recession panic.

As we await for Goldman to throw in the towel and admit its forecast of one rate hike in 2020 (and no cuts in 2019), was overly... optimistic, moments ago Barclays had a "hold my beer" moment, and just hours after JPMorgan changed its forecast, and as a result of an economic slowdown resulting from the escalating trade war now expects 2 rate cuts in 2019, Barclays has one-upped the largest US bank, and moments ago revised its FOMC forecast, now expecting 3 rate cuts in 2019. 

Now, while some may debate whether a curve inversion begins the clock on an upcoming recession, one things is undisputable (sic): while many analysts will caution that it is the Fed's rate hikes that ultimately catalyze the next recession and that every Fed tightening ends with a financial "event", the truth is that there is one step missing from this analysis, and it may come as a surprise to many that the last three recessions all took place with 3 months of the first rate cut after a hiking cycle!

Conclusion: the US will enter a recession somewhere around January, 2020.

If so, it will be one of the shortest recessions on record.

Having said that, we're back to the "chicken and egg" problem/question. How does a rate cut "catalyze" a recession. My hunch is the writer has that all wrong. My hunch is that by the time the Fed gets around to a rate cut they are too late: they see the recession coming, react too late, and by the time they make the rate cut, the recession is already in motion.

By the way, if the Chinese trade war does not end soon (like by the end of June), it will be a very, very bad Christmas for US retailers in 2019. US retailers are making their Chinese buying decisions by the end of June, perhaps by the end of July at the latest. US retailers go to trade shows to find out what's hot, to make their bets on what to order early in the summer. The Chinese need time to make the products, and then time to ship the products in time for Christmas. We are now down to less than six months when these Chinese products need to be on US store shelves.

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The EU

As "bad" as it might be in the US regarding a "Fed" rate cut, the Europeans have an even bigger problem. Europe has no more arrows in their quiver.

From The Wall Street Journal:

For five years, European nations have been trying to jump-start their ailing economies with what was supposed to be a radical, short-term remedy—negative interest rates.

Instead, central banks haven’t been able to wean their economies off them.

Increasingly, they appear to be a permanent feature of the landscape.

No major bank that introduced negative rates during Europe’s debt crisis has turned main policy rates positive again.

“Overall, we are on a painkiller,” said Tamaz Georgadze, chief executive of Raisin GmbH in Berlin, which provides a platform for consumers and businesses to deposit through 77 banks in 25 countries, “and it’s very hard to get off it.”

Wow, look at Switzerland -- I never would have expected that.