Oil and Trade War

Interesting times. U.S. or rather and more correctly Trump seems adamant to disruot the international law based trade system in building which U.S. played the most pivotal part. 

Interesting times too as the trade war (which I know personally think has started with the riposte from China of tariifs of $50bn) comes at a time when global oil markets are, to say the least, in confusion. 

The article below is interesting. Though not very insightful but givea us good information on how the spill overs with Trump's trump-acracy (read buffonery) will adversely effect the world. Somebody stop him!

Link: www.reuters.com/article/us-usa-trade-china-oil-graphic/chinas-tariffs-on-u-s-oil-would-disrupt-1-billion-monthly-business-idUSKBN1JE0CD

 

From the article: "Shipping data in Thomson Reuters Eikon shows that U.S. crude oil shipments to China have soared in value recently, jumping from just $100 million per month in early 2017 to almost $1 billion per month currently."

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Tariffs on oil could close the chinese market and it could lower the price of U.S. oil on global markets. Another discount adding to the WTI-Brent discount. Bad news for US oil producers heading away from the breakeven price.

 

 

 

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This is definitely not the way to go about what needs to be done to rebalance the trade equation. China and Europe (but mostly Germany) are wrong in this, but there is a way to resolve and a way NOT to resolve it, and the current path the U.S. is on will end badly. 

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52 minutes ago, Scotsman said:

This is definitely not the way to go about what needs to be done to rebalance the trade equation. China and Europe (but mostly Germany) are wrong in this, but there is a way to resolve and a way NOT to resolve it, and the current path the U.S. is on will end badly. 

and what is this right way? 

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Readers might keep in mind that the US is unusual in reference to large industrialized States in that it, historically, has had a low percentage of its economic activity done in terms of import-export. The old historical number was around only 7%.

Now, these days that number has become higher, as the US has engaged in the world of commerce.  However, it does not "need" to.  The US is not a classic "trading nation" as is/was for example Britain or Holland. It can and historically has operated just fine as an insulated economy. 

The implication of this is that countries such as China, which is totally mercantilist in its structure, needs unfettered access to that vast US marketplace much more than the US needs any access at all to the Chinese markets, mostly for raw materials and commodities such as sorghum and beef.   To restructure the US back to a 7% number is easy enough to do.  The US can continue to import bananas from Central America and coffee from Colombia  and mahogany from the Philippines and do just fine.  Can China survive with its factories no longer churning out product for the US consumers?  When WalMart alone imports some $60 Billion a year direct from China?  

I don't think so. 

The big problem the (Communist, let us remember) Central Committee of China faces is the vast population and the jobs they must have in order to preserve internal tranquility and stability, and, significantly, continue to avoid unrest that would lead to yet another violent revolution.  China cannot send a hundred million urban peasants back to the land, to go be subsistence farmers; those days are past.  So: if the products cannot be manufactured because they cannot be shipped (to the US), then what?  And don't think that those scenarios don't keep the leadership over there up late at night. 

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Trump Tarriff's?

PLEASE!

Ross Perot said it, it happened, CROOKED CLINTONS agreed, POOF ALL THE JOBS GONE - TRADE UNBALANCED, a Pravda purse 30% cost in leather ~$50 bucks, 40% in labor (~$75 U.S.) yet at Neems~ $2400+.  I hope, truly, I do, that TRUMP does really well.   Amazing that some were so shocked he won.  Guess that they are too young to remember the economics lesson and the NON POLITICIAN coaching from Perot which we saw again in Trump, only a touch kick a$$, take names later.  US Military on his side too.  Plus he scares the $hit out of anyone. LOVE HIM Remember the N. Korea "WEAPONS HE AND THE WORLD have NEVER SEEN" he said Kim would have to deal with -  sounded like he was talking, about declassifying.   e.g. Are the Rods of god de-classified?  Must be - they say it was theoretical.  Nope.  They are in space.

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11 hours ago, Jan van Eck said:

Readers might keep in mind that the US is unusual in reference to large industrialized States in that it, historically, has had a low percentage of its economic activity done in terms of import-export. The old historical number was around only 7%.

Now, these days that number has become higher, as the US has engaged in the world of commerce.  However, it does not "need" to.  The US is not a classic "trading nation" as is/was for example Britain or Holland. It can and historically has operated just fine as an insulated economy. 

The implication of this is that countries such as China, which is totally mercantilist in its structure, needs unfettered access to that vast US marketplace much more than the US needs any access at all to the Chinese markets, mostly for raw materials and commodities such as sorghum and beef.   To restructure the US back to a 7% number is easy enough to do.  The US can continue to import bananas from Central America and coffee from Colombia  and mahogany from the Philippines and do just fine.  Can China survive with its factories no longer churning out product for the US consumers?  When WalMart alone imports some $60 Billion a year direct from China?  

I don't think so. 

The big problem the (Communist, let us remember) Central Committee of China faces is the vast population and the jobs they must have in order to preserve internal tranquility and stability, and, significantly, continue to avoid unrest that would lead to yet another violent revolution.  China cannot send a hundred million urban peasants back to the land, to go be subsistence farmers; those days are past.  So: if the products cannot be manufactured because they cannot be shipped (to the US), then what?  And don't think that those scenarios don't keep the leadership over there up late at night. 

I agree. However, we can see that China is in the midst of what Joseph Stiglitz in his book (Globalization and its discontents, revisited, in the era of Trump) has defined as creative destruction---building a New economy on an Old one. The transition is far from complete, rather only started but we might see Chinese domestic consumption taking a bigger share gradually. 

The point that they need internal stability and all is spot on and yes it gives the leaders there one or two sleepless nights!

But at the same time given the now profoundly integrated global economy US cannot afford to continue doing what it has been recently...continuing with its New Protectionism. 

Let's see where things end up.

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12 hours ago, Rodent said:

and what is this right way? 

What do you suggest?

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The thing is, even if china closes all the oil shale imports from the US is still something very desirable for other countries, yeah, China would buy it from Russia (either arctic, siberian or shale) , or the middle east, but now, in 2018 in which Canada and US are net energy exporters and the US to become a net oil and gas exporter by 2020-22 there's not a big deal

the ASEAN countries, India and Bangladesh still need oil, they grow at incredible pace and are outgrowing quite a lot their domestic production

Take in mind that modern shale oil is cheap with breakeven costs of 25U$D a barrell, going to 20U$D and with future stuff like supercritical co2 recovery sistem with separation tanks, and nuclear energy suppor for the extraction those numbers can go to 15U$D and 10U$D, while venezuelan, arabian, and the actual offshore oil has breakeven cost of no less than 40 or 30 U$D, now put it against Australian, Russian, and Argie oil and the oversupply.

Every time the OPEC lowers the production the non OPEC countries take that demand.

China can't sustain a trade war with the US because the US doesn't need global commerce, the only link that made the USA not being what's today is the necessity for oil and gas imports, and that link in the chain broke like 6 months ago.China is dependant on commerce for everything. Food, energy, exports. They have howrever advantadges in many field, the large ammount of Hydropower and Nuclear in china makes a lot of cheap electricity lowering the cost of various things, like steel, aluminium, plastics and so on.

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I find that a lot of our discussion here is around the current political and economic style of the U.S.

We used to have allies and international rules to follow. Looking after #1 is not necessarily a bad thing. But when a national and world leader appears to be motivated mostly by how he himself looks, I sense trouble for the collective hive.

We are right now witnessing escalating tit-for-tat between the U.S. and China. This, by someone who says trade wars are good and easy to win. Does our leader have such a positive view of trade warship because he himself is at the helm of this war? What more is our leader possibly considering when he abandons allies and picks trade wars with significant trade partners? Keeping everyone off balance and reacting to him, seems to be his objective.

I see a growing amount of uncertainty and risk in our marketplace. The regular ole energy marketplace was already sporting enough even before Trump's deal-making is added in. Energy, in particular, is cyclical and a variable-outcome gambit.

We need to hear the voice of the energy industry in particular about what it's like to do business in a marketplace subject to the notions of one person.

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