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Surging oil prices rattle President Trump

The oil market has caught President Trump in an awkward spot between his pro-business instincts and his populist tendencies.

Trump, a major friend to the fossil fuels industry, took OPEC to task on Friday for the recent surge in oil prices. The price has climbed toward $70 in recent weeks, the highest in more than three years.

“Looks like OPEC is at it again,” Trump tweeted. “Oil prices are artificially Very High! No good and will not be accepted!”

Trump is right that OPEC, the Saudi-led cartel, has orchestrated higher prices, as it’s known to do. And millions of American voters will probably share the president’s outrage if gasoline prices soar as a result.

Yet millions of Trump voters also live in states such as Texas, Oklahoma and North Dakota that depend on the oil industry for prosperity. The 2014-2016 oil price crash cost countless jobs and led to dozens of corporate bankruptcies.

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OPEC Sees Oil Markets Tighten Further Even As US Shale Booms

OPEC Sees Oil Markets Tighten Further Even As US Shale Booms

LONDON/NEW DELHI, April 12 (Reuters) – The global oil stocks surplus is close to evaporating, OPEC said on Thursday, citing healthy energy demand and its own supply cuts while revising up its forecast for production from rivals who have benefited from higher oil prices.

U.S. shale oil output has been booming over the past year since OPEC reduced its own production in tandem with Russia to prop up global oil prices.

But as oil production collapsed in OPEC member Venezuela and is still facing hiccups in countries such as Libya and Angola, the oil exporters’ group is still producing below its targets meaning the world needs to use stocks to meet rising demand.

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EIA: US Shale Output To Rise By 125,000 Bpd In May

NEW YORK, April 16 (Reuters) – U.S. shale oil production is expected to increase in May for the fourth consecutive month, U.S. Energy Information Administration data showed on Monday, boosted by record production in the prolific Permian Basin of West Texas and New Mexico.

Total oil output is set to rise by 125,000 barrels per day (bpd) to 7 million bpd, the EIA said in its monthly drilling productivity report.

Production in the Permian Basin is expected to jump by 73,000 bpd to 3.2 million bpd, the largest according to records dating back to 2007.

The expanding production there has led to bottlenecks as pipelines transporting the crude have filled more quickly than expected.

Bakken output is expected to rise by 15,000 bpd to 1.2 million bpd, the highest since July 2015. In the Eagle Ford shale fields, production is set to rise by 24,000 bpd to 1.3 million bpd, the most since May 2016.

Meanwhile, U.S. natural gas production was projected to increase to a record 66.9 billion cubic feet per day (bcfd) in May, the highest on record. That would be up more than 1 bcfd over the April forecast.

Output in the Appalachia region, the biggest shale gas play, was set to rise by almost 0.4 bcfd to a record high of 27.7 bcfd in May.

(Reporting by Catherine Ngai; editing by Lisa Shumaker and Cynthia Osterman)

 

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First Commercial LNG Cargo From US East Coast Hits the Seas

(Bloomberg) — The first export of natural gas from the U.S. East Coast has set sail.

Dominion Energy Inc.’s Cove Point terminal in Maryland shipped its first commercial cargo of liquefied natural gas Monday, officially bringing the total number of U.S. exporters of the super-chilled fuel to two. The company last week said the facility was finally poised to send gas under long-term contracts after more than three years of construction, joining Cheniere Energy Inc.’s Sabine Pass terminal.

Cove Point’s startup is accelerating America’s emergence as an LNG powerhouse that’s expected to challenge Australia and Qatar for worldwide dominance in the next five years. Three more export terminals may open on the Gulf Coast by 2019.

While Cove Point’s East Coast location could give it an edge in competition for exports to Europe, the first ship may be headed to Asia. The tanker Adam LNG left Cove Point early Monday, bound for the Suez Canal, according to ship tracking data compiled by Bloomberg.

Dominion has agreements to sell gas to GAIL India Ltd. and a joint venture of Sumitomo Corp. and Tokyo Gas Co., but LNG cargoes are sometimes resold in transit.

To contact the reporter on this story: Ryan Collins in Houston at rcollins74@bloomberg.net. To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Christine Buurma.

 

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U.S. Department of Commerce Finds Dumping of Imports of Cold-drawn Mechanical Tubing from China, Germany, India, Italy, Korea, and Switzerland

Today, the U.S. Department of Commerce (Commerce) announced the affirmative final determinations in the antidumping duty (AD) investigations of imports of cold-drawn mechanical tubing from China, Germany, India, Italy, Korea, and Switzerland.  The Department also determined that critical circumstances exist for certain exporters/producers of cold-drawn mechanical tubing from Italy.

“Today’s decision allows U.S. producers of cold-drawn mechanical tubing to receive relief from the market-distorting effects of foreign producers dumping into the domestic market,” said Secretary Ross. “We will continue to take action on behalf of U.S. industry to defend American businesses, workers, and communities adversely impacted by unfair imports.”

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U.S. Secretary of Commerce Declares Fishery Disaster Following Hurricane Harvey

Today, in response to the request put forward by the Governor of Texas on February 14, Secretary of Commerce Wilbur Ross determined a commercial fishery failure due to a fishery resource disaster that occurred in Texas due to impacts from Hurricane Harvey that made landfall on August 25, 2017.

The Bipartisan Budget Act of 2018 included $200 million for fishery disasters declared by the Secretary of Commerce in calendar year 2017 and for fishery disasters resulting from Hurricanes Maria, Irma, and Harvey.

“The 2017 hurricane season was catastrophic for communities in Texas and for states along the Gulf of Mexico,” said Secretary of Commerce Wilbur Ross. “The Department of Commerce and the President are committed to working closely with Congress and the State of Texas to continue supporting recovery efforts for fishermen and local fishing businesses affected by the devastation wrought by Hurricane Harvey.”

Through this fishery disaster determination, participants in Texas fisheries are now also eligible for Small Business Administration disaster loans. Additionally, because these fisheries are in areas declared a Presidential disaster, public fishery infrastructure-related losses are eligible for Federal Emergency Management Agency Public Assistance. Economic Development Administration grants as well as Department of Housing and Urban Development Community Development Block Grant-Disaster Recovery funds are another potential source of assistance for fisheries pending allocations and grantee Action Plans.

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Why the oil era might not be over yet

What’s next for oil?

Economists like to say the best cure for high prices is, high prices. In the case of oil in recent years, the saying often rings true.

Years of elevated oil prices leading up to 2014, when Brent crude futures traded above $100 a barrel, helped drive efficiency in the industry and other energy sectors, but ultimately led to a supply glut and lower prices.

“That era of high-price oil that we had drove innovations all over the place especially in terms of shale but it also enabled oil operators to make much bigger risks,” said John Kilduff, founding partner of Again Capital.

Now, oil prices are rising again amid rising geopolitical tensions in the Middle East. The recent spike and volatility in prices could serve as a reminder of the benefits of cheaper alternative energy sources. But even as investment in renewables expands, many experts agree the oil era still has room to run.

“I think oil’s got another four or five decades before we see anything,” said John Eichberger, executive director of the Fuels Institute, a nonprofit. “Change is coming, but it’s going to take time.”

The International Energy Agency (IEA) expects oil demand to continue to grow until 2040, fueled by emerging markets like India and industries like trucking, petrochemicals, aviation and shipping. But the IEA says renewables and natural gas are capturing an increasing share of global energy demand.

One reason? China. The world’s largest polluter is now leading the way in the push for clean power.

This photo taken on May 22, 2017 shows a car passing new electric vehicles parked in a parking lot under a viaduct in Wuhan, central China's Hubei province.

STR | AFP | Getty Images
This photo taken on May 22, 2017 shows a car passing new electric vehicles parked in a parking lot under a viaduct in Wuhan, central China’s Hubei province.

“You have to watch China because the question is how much will they leapfrog,” said Tom Kloza, global head of energy analysis at OPIS, a company that provides oil price information.

The IEA expects one out of every four vehicles on the road in China will be electric by 2040. It projects the global electric car fleet will reach 280 million by that time, up from just around 2 million today. A big shift toward electric vehicles could have major implications for oil, which fuels more than half of the world’s transportation.

“Electric vehicles will compete and probably beat internal combustion on a cost basis pretty soon, which will give consumers a choice,” Eichberger said.

But he warned that even as electric vehicle sales increase, it will take decades to build the infrastructure for them to overtake gasoline cars. Analysts point to concerns over battery storage and costs. Unless oil prices continue to stay elevated, consumers might not yet be tempted to make the switch.

“You get so much bang for your buck with gasoline,” OPIS’ Kloza said.

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Prices Are Up, But Challenges Remain For Oil And Gas Companies

The U.S. is now a net exporter of natural gas, and more natural gas liquefaction plants are planned and under construction. Oil at around $60 per barrel and gas prices below $3 per million Btu are affordable.

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Trump Gets First Major Trade Deal as South Korea Looks to Avoid Tariffs

WASHINGTON — President Trump is on the verge of securing his first major trade deal, leveraging the threat of tariffs to gain concessions from South Korea on exports of steel and imports of American cars.

The deal, which the White House could announce on Tuesday, would come at a moment of heightened tension on the Korean Peninsula as the Trump administration prepares to hold talks with North Korea’s leader, Kim Jong-un. Ties between Washington and Seoul had become strained over disagreements about trade, including Mr. Trump’s steel tariffs, and threatened to further complicate the already fraught discussions with North Korea.

The finalization of a trade agreement with South Korea would hand Mr. Trump a victory in his “America First” approach to trade, in which he has threatened to take tough trade action unless other countries agree to concessions, including a reduction in the gap between what they export to the United States and what America exports to their shores. The blanket steel and aluminum tariffs announced by the White House earlier this month are the most recent example of that blunt approach, with the White House using exemptions and revisions as a carrot to avoid the tariff stick.

“I think the strategy has worked, quite frankly,” Steven Mnuchin, the Treasury secretary, told Fox News in an interview on Sunday. “We announced the tariff. We said we were going to proceed. But, again, we said we’d simultaneously negotiate.”

“I think this is an absolute win-win,” he added, referring to the agreement with South Korea.

The South Korean government announced the deal on Monday.

“It looks like we’re going to have a good result on that,” Peter Navarro, Mr. Trump’s trade adviser, said of the South Korea deal on CNBC on Monday.

It remains to be seen whether the revised pact will be enough to satisfy lawmakers and industries that have been critical of South Korea’s trading practices. Among the biggest concerns have been access to its markets for American exports of automobiles and agricultural products.

The reduction of trade deficits have been a priority for the United States; in 2016, it had a $17 billion trade deficit with South Korea.

In a statement published on Monday, the South Korean Trade Ministry said it had agreed to adhere to a quota of 2.68 million tons of steel exports to the United States a year, which it said was roughly equivalent to 70 percent of its annual average sent to the United States from 2015 to 2017. It also agreed to lower trade barriers to vehicles imported from the United States. Trump administration officials cited what they considered unfair barriers against American-made cars when they began last year to pressure South Korea to amend the trade pact.

In return, the Trade Ministry said, South Korea would be exempt from the steel tariffs.

Under the deal, the number of vehicles the United States can export to South Korea without meeting local safety requirements would double to 50,000.

Cars are a major reason for Seoul’s trade surplus with Washington. Brands like Hyundai and Kia have found ready markets in the United States, but the big American automakers have complained that restrictions keep them from trying to make the same headway in South Korean. The agreement is also expected to allow the United States to extend the tariffs that it imposes on Korean pickup trucks to 2041. The tariffs are currently scheduled to be phased out in 2021.

Kim Hyun-chong, South Korea’s trade minister, told journalists on Monday, however, that there would be no further opening of his country’s agricultural markets, and no changes to tariffs that had already been lifted.

The Trump administration suggested last week that the deal with South Korea was nearing completion as it unveiled the new tariffs targeting China.

Trade experts said that while the concessions were a win for the Trump administration, they would most likely do little to dent the trade deficit and that South Korea was probably happy to have the negotiations behind them after the United States briefly flirted with withdrawing from the pact.

Washington and Seoul began negotiations in January on changes to the six-year-old trade agreement, one that Mr. Trump had previously called a “horrible deal.”

“I’m happy that they can take this off the table as another trade policy irritant,” said Dan Ikenson, a trade expert at the Cato Institute who argued that the administration’s trade policies and focus on trade deficits are out of sync with economic reality. “This administration happens to believe, and it’s a fairy tale, that bilateral trade accounts matter.”

Some labor groups and others who share Mr. Trump’s general frustration with America’s trade relationship with South Korea reacted coolly on Monday to the public details of the renegotiated deal, saying that the administration appeared to have achieved only modest progress and left some important issues out of the agreement. Several said the increased auto import numbers did not guarantee that automakers would be able to crack the Korean market, which is notoriously hostile to foreign cars.

Others expressed cautious optimism.

“As with all trade agreements, the details are important, so I want to see the specific concessions we secured from Korea — especially on steel,” said Senator Sherrod Brown, Democrat of Ohio. He added that it was “good news” that Robert Lighthizer, the United States trade representative, “appears to have taken steps to make the Korea agreement better for U.S. workers and auto companies while also getting the Koreans to limit their steel exports to the U.S.”

Mr. Trump’s proposed tariffs — set in motion by a Commerce Department declaration that steel and aluminum imports posed a national security threat because they degraded the American industrial base — promptedAmerican allies and trading partners including Australia, the European Union and Japan, as well as South Korea, to jostle for exemptions. But the impact of the tariffs may not be as great as expected, since most of the biggest suppliers of foreign metals have been granted at least temporary exemptions.

South Korea was the third-biggest exporter of steel to the United States in 2016, after Canada and the European Union. Mr. Lighthizer said last weekthat those three trading partners, along with Argentina, Australia and Brazil, would initially receive a reprieve from the tariffs.

Mr. Trump pulled out of the Trans-Pacific Partnership trade pact last year and said that he would focus on negotiating new bilateral deals with countries around the world. The steel tariffs are speeding up that process, and Mr. Mnuchin signaled on Sunday that more deals were on the way.

“Where we’ve put a pause on tariffs, we’re negotiating,” he said.

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Baker Hughes rig count and Texas flatbed rates go to the moon

 A shale gas well in Louisiana's Haynesville play. ( Photo: Wikimedia Commons )

The Baker Hughes rig count, a metric tracking oil production in North America since 1944, is sky-high this week at 993 rigs as of Thursday, an increase of 169 rigs year-over-year. As oil and gas production builds, particularly in trucking-intensive shale plays, flatbed spot rates for lanes associated with the petroleum industry continue to gain momentum.

FreightWaves Director of Data Science Sam Tibbs has estimated that every additional rig is associated with an increase of 1.1M truckload miles.

 

We used DAT’s Rateview tool to look at flatbed lanes connecting three kinds of locations: flatbed trucking hubs in Birmingham and Montgomery, Alabama, and Nashville, Tennessee; refinery centers in Houston and New Orleans; and shale plays like the Permian Basin in West Texas (Lubbock) and the SCOOP/STACK shale fields in central Oklahoma (Oklahoma City).

The most dramatic spike in flatbed spot rates we found was on the Houston to Oklahoma City lane, which is averaging $3.08 over the past seven days, up from an average of $2.58 in February. The lane from Birmingham, Alabama, where P&S Transportation, one of the largest flatbed carriers in the country is based, to Oklahoma City has also been running hot at $2.97 over the past seven days, up from $2.21 in January and $2.72 in February.

Flatbed traffic to and from cities like Houston, New Orleans, and Dallas, which supply the oil and gas industry with financing, personnel, and equipment, has also been trending up. Flatbed rates from New Orleans to Houston averaged $2.87 over the past seven days, rising steadily from $2.64 in November. The lane from Montgomery to Houston posted an average of $2.74 over the past seven days, up from $2.41 in February. Montgomery to Dallas was running steadily at $2.57 over the past seven days, up slightly from $2.48 in February. Flatbed truck rates from Nashville, where Daseke-owned TSH & Co. is based, to Houston jumped up to $2.67 over the past seven days, from $2.28 in February.

Finally, the heavily-trafficked lane from Houston to the Lubbock market in west Texas, which we used as a proxy for the Permian Basin, was averaging $2.97 over the past seven days, still climbing from its February average at $2.71.

FreightWaves expects trucking-intensive shale oil production to stay strong as long as prices for West Texas Intermediate (WTI) crude remain high. The Federal Reserve Bank of Dallas conducted a survey of 136 shale companies and found that more than half of them intend to hire more people this year, and that the average break-even point for the respondents was $47-52 per barrel. Today, WTI is trading at $64.94 (see the graph below for WTI prices over the past month):

 WTI prices over the past month. ( Graph: Bloomberg ) Another crucial metric for the American oil industry is the Brent-WTI spread, which is the difference in price between Brent crude, an international benchmark based on North Sea oil, and WTI, the American oil index. A wide Brent-WTI spread indicates a relatively large discount for American oil compared to the international benchmark, making it more attractive for foreign importers. As of Friday morning, the Brent-WTI spread was $5.36, representing an increase of about $1.45 since January 2017.

International geopolitics have kept oil prices high despite surging American domestic production, which has topped 10M barrels a day each week since early February. OPEC and Russia, who have been cooperating on production curbs in order to prop up prices since January 2017, are said to be in talks to transform their year-to-year deal into a decades-long alliance.

“We are working to shift from a year-to-year agreement to a 10 to 20 year agreement,” said Saudi Crown Prince Mohammed bin Salman in an interview with Reuters on Monday night. “We have agreement on the big picture, but not yet on the detail,” said the prince.

President Trump’s appointment of John Bolton as national security adviser may have been behind a sudden spike in WTI crude futures, which have found a new cap around $66.60. Bolton is a well-known hawk and unilateralist, and his appointment triggered speculation that the United States may seek renewed sanctions against Iran, OPEC’s third-largest oil producer.

“People are focused on the fundamentals of oil and they are very strong right now,” Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago, said in an interview with Bloomberg by telephone. “We are seeing very strong demand for oil around the globe. As refiners come out of maintenance, we are going to be in a very tight marketplace.”

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