Tom Kirkman

The Meaning Of The Iran-China Deal (and how it affects oil)

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A bit of a different take on the China / Iran oil trade outlook, as it relates to US sanctions against Iranian oil and the US / China trade war.  Good musings to mull over.

Excerpt below, full article in the link:

The Meaning Of The Iran-China Deal

Global risk assets got a boost last week from news that the US and China will resume their stalled trade talks in October. The assets that benefited included oil, which rallied 6% on expectations that increased chances of a US-China trade deal will be positive for global growth, and therefore for energy prices. It is likely the oil price will now find further short term support from news at the weekend that Saudi Arabia has replaced its oil minister with a half-brother of the kingdom’s effective ruler, crown prince Mohammad bin Salman, who favors higher prices.

Given the close correlation between the oil price and inflation expectations, these developments might seem to point to higher than expected future inflation, and a reduced chance of central bank easing, which would be bearish for overpriced global bond markets.

However, other news last week can be considered bearish for both the oil price and global growth expectations. In particular, reports that China has signed a long term agreement to buy large quantities of Iranian oil in defiance of US sanctions will weigh on global crude prices and further complicate US-China talks, reducing the chances of a deal before the 2020 US election. In effect, the world is now facing a four-way tug of war over the oil price. The clearest position is that of Riyadh, which wants higher oil prices. Outgoing oil minister Khalid Al-Falih was appointed in 2016 to secure Opec production cuts and juice up prices, both to plug Saudi’s fiscal deficit and to support the planned IPO of state oil giant Aramco. However, at US$62/bbl, the price of Brent remains far below Riyadh’s near term target of US$75-80/bbl, hence Al-Falih’s replacement with a royal insider.  ...

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2 hours ago, Tom Kirkman said:

the kingdom’s effective ruler, crown prince Mohammad bin Salman, who favors higher prices.

2 hours ago, Tom Kirkman said:

The clearest position is that of Riyadh, which wants higher oil prices.

Hold the front page. 

Nice article Tom, cheers. 

 

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(edited)

Chinese politicians  are Liars!

As far as I know they have a diversied system for their oil supply  , from Iraq to Angola, Iran,Saudi arabia, etc.

Sacking Bolton makes a new oppurtunity for the west to have a friction less relations with moderates in Iran. In other case  IRGC (hardliners) will win in the next elections.

I wish a guy like General David Petraeus  will take the office in white house for security advisor.

Coordination with Europeans is vital for american policy against the hardliners in Iran.

It takes at least  three or four years to have a complete change of Iran policy .

 

 

Edited by Mehrdad Nematollahi

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21 minutes ago, Mehrdad Nematollahi said:

Chinese politicians  are Liars!

As far as I know they have a diversied system for their oil supply  , from Iraq to Angola, Iran,Saudi arabia, etc.

Sacking Bolton makes a new oppurtunity for the west to have a friction less relations with moderates in Iran. In other case  IRGC (hardliners) will win in the next elections.

I wish a guy like General David Petraeus  will take the office in white house for security advisor.

Coordination with Europeans is vital for american policy against the hardliners in Iran.

It takes at least  three or four years to have a complete change of Iran policy .

 

 

Fascinating,who might he replace Bolton's position with, whose much more accommodating?

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So what does it mean that China continues to buy oil from Iran?  It means that China needs the oil, that is called demand and yet we are treated to this mindless drivel about lower demand even in the face of declining inventories of product and raw materials.  The world is still consuming oil at an ever increasing rate and yet production is not increasing.  China is increasing it's imports of foreign oil, contrary to claims that they have a surplus.

This week the EIA reported another substantial draw and no increase in production. The decline in production from Iran can't be undone in a weeks time or even a months time. It will take a while to bring any shut-in production back on line and furthermore, they may have lost production capacity irrespective of cutbacks due to sanctions.  The notion that the decline in production from Iran is solely from sanctions is misguided.

The world has not suddenly switched over to renewables and oil is no longer needed, that is simply a false meme that is being pushed in the media for the purposes of keeping a lid on oil prices.  If oil was doing what gold was as it often used to, the markets would be down 25% and that is why we continue to be treated to a major dose of market negativity on oil.  The actual facts do not support the narrative.

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30 minutes ago, wrs said:

and yet we are treated to this mindless drivel

Bonus points

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