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Prices have fallen back to range 50.6-51.5 as I commented on the 6th of June. The attack on the oil tankers moved WTI above this range, but not for long. We are back in the same range.

Looking to supply and demand we have historical high oil stocks in the US, and high gasoline stocks as well. On the demand side we see almost each week decreased oil demand figures for 2020 and not much signs that the G20 meeting will be succesfull. I mean agreements on topics that are important. We in Europe might have a wrong view, but we do not get exited from the last Trump tweet "good talks ahead". China has been "insulted" and the Huawei approach has not yet been countered by China. Some FEDEX stuff, but not a real counter.

How can we expect China to come to terms with the US? China has pride as well. Needless to say that both the US and China are hurt by the trade war, but ending this situation needs more than a G20 meeting. Is there a gentle way out for both parties?

If China would consider to change the way they currently (do not) handle intellectual property and foreign investments etc., perhaps. If the US would stop blaming Huawei (just proof the facts) and stop the import tariffs, perhaps. To me this looks like a 1-2 year road to walk, before that I can only see tactical maneuvers by both countries, not solving the real issues and hence the status quo will continue and oil prices wil go south.

And OPEC Plus? Too little (production curtailment), too late, too optimistic about 2019 demand. Do you agree? 

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14 minutes ago, oilexpert.nl said:

How can we expect China to come to terms with the US? China has pride as well. Needless to say that both the US and China are hurt by the trade war, but ending this situation needs more than a G20 meeting. Is there a gentle way out for both parties?

If China would consider to change the way they currently (do not) handle intellectual property and foreign investments etc., perhaps. If the US would stop blaming Huawei (just proof the facts) and stop the import tariffs, perhaps. To me this looks like a 1-2 year road to walk, before that I can only see tactical maneuvers by both countries, not solving the real issues and hence the status quo will continue and oil prices wil go south

For your consideration:

There It is – Chairman Xi Jinping Announces Magnanimous Panda: DPRK Hostage Release is “Correct Direction”

...  For two-and-a-half years U.S. President Trump has been working on two connected objectives: (1) removing the threat posed by North Korea by severing the ability of Beijing to use the proxy province as a weapon (Kim is hostage to China); and (2) deconstructing the growing economic influence of China.

Both issues are directly connected to U.S. national security; and both issues are being approached by President Trump through the use of economic leverage to achieve national security results.

In the dynamic of the denuclearization of North Korea, the most likely scenario is Chairman Xi playing the role of magnanimous panda and *guiding* Chairman Kim Jong Un into the world of nations. Hence the op-ed outlined today.  ...

 

...  Remember, two connected objectives: (1) removing the threat posed by North Korea by severing the ability of Beijing to use the proxy province as a weapon; and (2) deconstructing the growing economic influence of China.

With #1 achieved, President Trump will still intend to get #2. Heck, Trump has spent 30-years openly advocating for the principle of restoring American wealth. That means the economic pressure will continue until Beijing is defeated. If Chairman Xi expects POTUS Trump to retreat from the massive geopolitical leverage he has created, well, it’s doubtful that will happen.

President Trump has threatened more tariffs and more consequential action as it relates to non-tariff barriers, IP protection, forced technology transfers etc as a result of China reneging on their prior agreement.  Additionally, President Trump has been openly, albeit with coded messages, telling the world North Korea was already no longer a threat.

The best offer -the most likely offer- from President Trump at the G20, is a return to the original 150-page agreement, constructed by USTR Lighthizer and Vice-Premier Liu He, that Beijing and Chairman Xi walked away from.  However, even that offer by President Trump is tenuously optimistic at best, because Trump knows China is on its heels.

President Trump has simply outwitted and outmatched Chairman Xi in this economic confrontation.  While Xi thought he was outmaneuvering his rival, it was President Trump who was the one wearing the Panda mask all along.

In hindsight every move since early 2017 including: (1) the warm welcome of Chairman Xi Jinping to Trump’s Mar-a-Lago estate; (2) the vociferous praise poured upon Xi; (3) the U.N. sanctions where China and Russia agreed; (4) the November 2017 “golden ticket’ tour of Asia; (5) the direct engagement with North Korean Chairman Kim Jong Un; (6) the strategic relationship with Japanese Prime Minister Shinzo Abe; and a host of smaller nuanced moves were all quietly building toward this conclusion.

For President Trump to have navigated Chairman Xi into such a position is the pinnacle of strategic success.  The Chinese culture doesn’t even have a frame of reference for a position that includes ‘less losing’ as their better option.  ...

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There is not going to be any "trade deal" between the USA and China any time soon - if ever. And the reason is that China is run by Communists who have adopted a 1700's British "mercantilist" idea of trade: the outlying countries and colonies and are there to supply raw materials and foodstuffs, and to take manufactured goods in return, at currency exchange rates and prices set by the Motherland.  And you already know that that idea is going nowhere with Trump. 

Where Westerners, specifically the Milton Friedmanites of the Chicago School, all go wrong is in their fixation on "free trade."  There is no "free trade" with China and there never was and never will be. What you really have is not "comparative advantage" as set forth by Friedman but instead "absolute advantage" as manufactured by the Communists.   OK, so that sounds polemic:  I don't intend it that way.  The reality is that a Chinese manufacturer pays nothing for his factory land - all land is owned by nobody - and pays little for his building - all is either owned or subsidized by the State - and pays little or nothing for social services such as unemployment insurance and retirement charges such as FICA in the USA, and then the currency exchange rate is manipulated, so you never get an even playing field. 

Now the Democrats are unable to grasp this.  I remain puzzled by this, but they just do not "get it."  So the Clintonites go out there to advance all these free trade deals and the trans-pacific partnership, and then they wonder why all the American factories go out of business and the American workforce in the US "rust belt" goes jobless. Along comes Trump and he grasps that if you have 50% of world steel production inside China and they have no internal market for the stuff, then they can and will dump the surplus into the USA and wreck the US manufacturers,and put them all out of business.  And they understand the same for aluminum.  So, then the Communists go do that, and you wonder why the US steel and aluminum mills and smelters all collapse.  At one point, the entire aluminum industry in the USA, every single last smelter and mill, was on the brink of permanently closing.  And along comes Trump, and single-handedly saves both industries, and puts thousands back to work. And now you can go call the Donald all the names you want, and call him a sexist pig and a boor and uncouth and a pig and a wife beater and whatever else you want to call him, but he can deal with Chinese product dumping - and the Clintonites cannot, as they just cannot fathom how the economy really works.  And I really don't think the Clintonites even much care.  Those Rust Belt factory workers are expendable, they are the "deplorables."  And OK, maybe those factory workers are uncouth and uneducated and own guns and go deer hunting, but dammit, those are your fellow countrymen, and disdainfully shovelling them off into abysmal perpetual poverty because they cannot quote verses of Faust or Chaucer is just pathetic. What a cruddy attitude that is!

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Thank you JV for your deeper analysis.

We Europeans see it somewhat differently, but I agree upon your free trade arguments. So if we accept, and I agree, this is a battle of power that will not be over soon, will this not mean that oil prices have to go south as the world economy will slow down as a result? We Europeans do see that, at this moment, that Trump delivers what he promised when he was elected. Lower crude prices, more jobs, less taxes e.d. Therefore I feel he will continue his path, also versus China, and hence the import duties will remain for long and more counter action from China are to be expected as their economic growth can not handle current import duties applied.

 

Or do you think China will make consessions to end the trade war?

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5 hours ago, oilexpert.nl said:

will this not mean that oil prices have to go south as the world economy will slow down as a result?

To attract the attention of the poster, and let him know you have posted a question, highlight the part of the post and wait for the "quote selection" icon to appear next to it, then click on that and the selection will appear in the Next Post as a quote (or, you can hit the "quote" button down below, but that copies everything).  

Oil prices are set by traders in the trading pits, and that is all a function of emotions. It has nothing to do with the traditional ideas of "supply and demand," or even "supply and consumption," as by definition there is always enough supply to match what is being consumed.  The traders operate only on two emotions:  "greed," and "fear." 

Over very long cycles,prices will start to drift towards whatever it takes to support development of sufficient market supplies.  But that cycle is so long-term that it is not relevant to what you intend, which are basically spot trading prices.  Those are set by greed and fear. 

What you are seeing with China is the dis-engagement of two large manufacturing economies.  It gets dis-engaged as it no longer meets the original purposes.  Remember that (President) Nixon and Kissinger started the engagement with the hostile, paranoid, reclusive Chinese Communists with what was called "ping pong diplomacy," the sending of a US team of ping-pong players to China to go play their teams.  From there, the doors opened, and China got the idea that they could and should become the workshop of the world.  The USA put up with that as the price of maintaining world peace, and keeping the total crazies inside that Communist Party from starting more wars, including nuclear war.  You might remember that Mao was totally blase about nuclear war, indicating that his country could handle the punishment.  That made for a very risky environment. 

Now that the Communists have matured and bureaucrats run the Party over there, the US sees no reason to be heavily disadvantaged, and so is not dis-engaging in that massive shift of manufacturing prowess to China.  It gets pulled back.  So the decrease in world trade is going to continue.  Folks forget that, back about 1955, imports accounted for only about 7% of the US economy.  The US market is so huge, comprising some 25% of world GNP, that it can run very nicely with NO imports, if it comes  to that. 

5 hours ago, oilexpert.nl said:

Or do you think China will make consessions to end the trade war?

No.  To explain, the Chinese are big, huge, on "saving face."  They cannot be seen to knuckle under to US demands. So no, there will be no Chinese concessions.  Not going to happen. 

The US is not going to let the Chines resume dumping of Chinese steel into the US market, and is not going to let the Chinese dump, and wreck, the US aluminum industry. The entity that wants the US to do that (allow dumping) is Boeing, which uses vast amounts of aluminum in their airplanes, and also sees this huge market for planes in China.  What Boeing does not appreciate is that China wants to be the premier world aircraft manufacturer - bigger than Boeing and Airbus.  So it will continue with development of the C-919 and other machines, and Boeing will have transferred their technology, only to see China use it against them in world markets.  Just watch.

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(edited)

On 6/19/2019 at 7:39 AM, oilexpert.nl said:

Prices have fallen back to range 50.6-51.5 as I commented on the 6th of June. The attack on the oil 

Won't see sustained oil prices below $50 anytime soon.  Unless Saudis want to do some damage. Many independents vulnerable now.  Investors wised up.  

As for China I think when Trump says he is perfectly happy with Tariffs he is telling the truth.  

If Trump can't get a "good" deal he and his negotiators are happy to disengage from China as a trading partner to start the process.  It won't happen overnight and could take 5 to 10 years to fully disengage. 

Now that 25% tariffs kicked in June 1st Multinational companies have to rethink where they produce and diversify. 

Only thing Trump is worried about is Biden getting in office and caving to China.  Biden has some skeletons in the closet re China.  The suspect financial dealings of his son with China while he was VP that landed  Sonny boy a windfall. 

 

Edited by SKEP
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