Adventus

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Friday, April 20, 2018

The Permanent Problem of Boom and Bust



Geopolitical tensions in the Middle East have largely driven the price rise this month, including the U.S.-led strike on the Syrian regime last week. Investors are also monitoring the U.S. stance on the international nuclear agreement with Iran, due for review next month. A reinstatement of sanctions could risk hitting oil production and reducing global supply from one of OPEC’s largest members.

Brent is “ticking higher by the day, as OPEC cuts are in tact, global oil demand growth is firm, Venezuela oil production is in a death spiral, renewed Iran sanctions are imminent and sanctions towards Russia on oil and not just aluminum is possible,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets.

Among the "market movers":

Trump slaps tariffs on solar panels. The Trump administration moved forward with tariffs on imported solar panels, dealing a blow to the rapidly growing renewable energy industry. The duties will reach as high as 30 percent on solar equipment and will be ratcheted down in the years ahead. The White House also said that additional tariffs will be forthcoming on steel, aluminum and other products from China. The solar industry has warned that the decision could drive up the cost of solar projects, threatening to undermine the sector’s competitiveness.

Maybe Trump is thinking about those offshore drilling leases the Interior Department tried to auction off in March:

The Interior Department had offered up a record 77 million acres (31.2 million hectares) for development with discounted royalty rates on the shallower tracts, as part of a broader effort by President Donald Trump's administration to ramp up U.S. fossil fuels output.

But companies bid on just 1 percent of that acreage, and won those tracts with bids averaging $153 an acre - 35 percent below levels at a similar auction last year, and a fraction of those in the region in 2013 when oil prices were much higher, according to a Reuters review of the data.

Offshore drilling is expensive and requires infrastructure:  specifically, pipes to carry oil from the rig to the shore (or at least to ships).  Oil companies were only interested in acreage already close to infrastructure.  The acres far from pipes and platforms is far too expensive to explore, drill, and extract (if there's anything to extract).  Then again, there's always ANWR.

The Interior Department’s Bureau of Land Management (BLM) released a notice Thursday that it is starting the “scoping” process for an environmental review to examine the impact of leasing drilling rights to companies in ANWR’s 1.6 million-acre coastal plain.

The BLM will take public comments for 60 days and hold four meetings in Alaska to inform the public how it will conduct the environmental review, it said in the notice, which is set to be published Friday in the Federal Register.
I suppose at this point we can only hope that sale is as successful as the offshore lease sale was.  Perhaps Trump thinks the idea is that expanded areas to exploit will drive prices down, but that's not what the U.S. drillers want.  It's the glut in oil supply that OPEC is trying to dry up, a reduction in supply which will raise prices and increase drilling activity in America, which in turn will increase supply and cause prices to....fall.  Which in turn will lay-off oil field workers and oil company employees again, which in turn will hurt economies that depend on the extraction industries, economies in states that tend to vote....Republican.

So to champion rising oil prices is to champion...falling oil production.  Well, not that directly, but supply and demand is pretty much up to the market, and the wiser course, economically as well as environmentally, is to champion far less dependence on fossil fuels.  I understand the British are moving that way.  I remember when we used to be a leader in these things.  I suppose that wouldn't make America great again, huh?

ADDING:

I knew there was something this morning I'd read connecting Syria to oil prices; just took me a while to find it.

Just before 6 a.m. on April 11 Trump posted this:



Oil prices hit new 2018 highs as missile strikes on top crude exporter Saudi Arabia added to the market's worries about escalating conflict between the United States and Russia in Syria.
And why did Trump post that tweet?

The threat came after the Russian ambassador to Lebanon said his nation's military would intercept American missiles and potentially target the U.S. craft that fired them. The potential American strike follows a suspected chemical attack on the rebel-held city of Douma, allegedly by forces loyal to Syrian President Bashar Assad. 

Yeah, the problem with world oil prices is only OPEC.

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