About every other week you will hear something along the lines of “oil hits such-and-such a high as fear of trade war resides”, or “oil drops again over trade war fears”. Every tweet is etched in stone for the day in question. Today is no different, and on this day, oil has hit a three-week high on Trump’s apparent approval of a “phase-one” trade deal with China, despite the fact that Beijing hasn’t exactly confirmed this. Oil also responded to Trump’s reduction in existing tariffs and cancelation of new tariffs that would have gone into effect this Sunday, in return for Beijing’s purchase next year of $50 billion in agro and other products. The market, though, is pretty much like a jilted lover sitting by the phone: Last week, word was that no deal would be forthcoming until after 2020 presidential elections, and then a massive tech cold war was threatened by China in retaliation. The vaguest tweet could send oil back down at any time.
Welcome To Mexico’s Risk-Mitigating Secondary Oil Market
AMLO (as Mexican President Obrador is referred to these days) is causing so much uncertainty in the oil patch that major foreign companies are playing a risk-mitigating game of share swapping because they have no idea what’s about to come next.
As AMLO seeks to return state-run Pemex to its previous monopolistic glory, not only is he not handing out any more concessions, ostensibly until…
About every other week you will hear something along the lines of “oil hits such-and-such a high as fear of trade war resides”, or “oil drops again over trade war fears”. Every tweet is etched in stone for the day in question. Today is no different, and on this day, oil has hit a three-week high on Trump’s apparent approval of a “phase-one” trade deal with China, despite the fact that Beijing hasn’t exactly confirmed this. Oil also responded to Trump’s reduction in existing tariffs and cancelation of new tariffs that would have gone into effect this Sunday, in return for Beijing’s purchase next year of $50 billion in agro and other products. The market, though, is pretty much like a jilted lover sitting by the phone: Last week, word was that no deal would be forthcoming until after 2020 presidential elections, and then a massive tech cold war was threatened by China in retaliation. The vaguest tweet could send oil back down at any time.
Welcome To Mexico’s Risk-Mitigating Secondary Oil Market
AMLO (as Mexican President Obrador is referred to these days) is causing so much uncertainty in the oil patch that major foreign companies are playing a risk-mitigating game of share swapping because they have no idea what’s about to come next.
As AMLO seeks to return state-run Pemex to its previous monopolistic glory, not only is he not handing out any more concessions, ostensibly until foreign oil companies prove themselves, by suspending 2019 auctions and farm-out agreements, but he’s also injected a level of uncertainty over existing concessions.
So, Mexico is open for oil shopping again… just under different circumstances. Up for grabs will be Chinese CNOOC stakes in two blocks in the offshore Perdido basin, most likely at the turn of the New Year. Also up for grabs will be Germany Wintershall Dea’s stake in an offshore block it won with Malaysian Petronas. And others are expected, as well.
What it means is that foreign oil companies are losing confidence in Mexico as AMLO moves towards nationalization, couched in simple energy independence. And he has quite a lot of support for this publicly. The real question is whether his planned $8-billion Pemex refinery, now approved to move forward, will be the shining achievement that returns Pemex to its glory, or whether it will suck all the investment money from the state-run giant and make it impossible for it to work towards increasing production to feed that refinery.
Why 2020 Still Won’t Be the Year of Lithium
Over 100 planned battery factories will increase lithium battery production capacity massively, but it’s going to take some time to get them online.
The biggest recent market movements on this scene include:
- Tesla’s decision to build ‘Gigafactory 4’ in Germany, with construction expected to be completed in 2021, and 500,000 cars expected to be produced every year.
- GM’s announcement that it will build an EV battery factory with LG Chem in Ohio.
- Start-up Northvolt’s first contract to deliver a commercial energy storage system for its large-scale European battery gigafactory. At the same time, a new Northvolt-VW JV was announced for another battery gigafactory in Germany, with construction to begin in 2021.
- The completion of installation of the first lithium-ion cell manufacturing and assembly facility in Bucharest, Romania, by South African battery maker Metair.
It should be a huge boon for lithium, and it will be, but – again - investors have to be sensitive to the timing because they’ve jumped the gun on this before. This is an investment of great patience. The timing is tricky because there is a lithium glut, which is forcing trimmed production of the battery metal, even though so many factories are slated to come online. That means there is little new investment in more lithium supply, so the timing is always off: By the time there is a huge need for more lithium, we’ll go from serious supply glut to serious supply squeeze, which will in turn negatively impact EV production and battery gigafactories. It’s a vicious circle.
That’s why 2020 will likely be a repeat of 2019 for lithium. We need to look further out here, but the long-term has fantastic upside, once the scales are balanced and lithium supply comes together with battery factories and EVs.
