What Does Hong Kong Have To Do With Oil Prices?
Nothing moves oil up or down right now like the U.S.-China trade war, and what is happening in Hong Kong will likely reverberate on this most economically devastating playing field. The major spike in tensions in Hong Kong this week should be high on the oil investor radar. By mid-Tuesday, police had arrested nearly 300 people in massively intensifying protests, and they spared no-one, whether they were 12 or in their 80s. While this is all going down, Trump is making sure that the Hong Kong Human Rights and Democracy Act doesn't see the light of day. This bill - already approved by the Senate Foreign Relations Committee - would lead to sanctions against those in Beijing responsible for the Hong Kong crackdown. It's been stopped in Congress precisely because its passage would put the nix on any trade deal between the U.S. and China. So right now, the Hong Kong protests are being completely hijacked by the trade war, which is also devastating Hong Kong. The bill represents an area well beyond the trade war where Trump isn't comfortable playing. If Hong Kong's protests get much more out of hand and someone is forced into action, a U.S.-China trade deal will almost certainly be taken off the table, and we'll see the oil price needle move more dramatically. On Tuesday, investors were disappointed, and oil prices dropped Wednesday again after Trump noted that he was close to finalizing a trade deal but offered no date or venue…
What Does Hong Kong Have To Do With Oil Prices?
Nothing moves oil up or down right now like the U.S.-China trade war, and what is happening in Hong Kong will likely reverberate on this most economically devastating playing field. The major spike in tensions in Hong Kong this week should be high on the oil investor radar. By mid-Tuesday, police had arrested nearly 300 people in massively intensifying protests, and they spared no-one, whether they were 12 or in their 80s. While this is all going down, Trump is making sure that the Hong Kong Human Rights and Democracy Act doesn't see the light of day. This bill - already approved by the Senate Foreign Relations Committee - would lead to sanctions against those in Beijing responsible for the Hong Kong crackdown. It's been stopped in Congress precisely because its passage would put the nix on any trade deal between the U.S. and China. So right now, the Hong Kong protests are being completely hijacked by the trade war, which is also devastating Hong Kong. The bill represents an area well beyond the trade war where Trump isn't comfortable playing. If Hong Kong's protests get much more out of hand and someone is forced into action, a U.S.-China trade deal will almost certainly be taken off the table, and we'll see the oil price needle move more dramatically. On Tuesday, investors were disappointed, and oil prices dropped Wednesday again after Trump noted that he was close to finalizing a trade deal but offered no date or venue for making this official.
Dissecting Iran's Giant New Oil Discovery
Don't be too quick to discount the details of Iran's announcement of a giant new oil discovery this week. The significance of the discovery depends on who is reporting on it, from rival Gulf media to Israeli outlets and Western interpretations and misinterpretations - not to mention Iran's need for more public victories right now.
Over the weekend, Iranian President Hassan Rouhani announced a giant new oil discovery in the country's southwest Khuzestan province. Rouhani said the new oilfield contains 53 billion barrels of crude, describing it as a "small gift" of the government to the people of Iran. Less than a day later, media was all over this, issuing what amounted to corrections and retractions after Iranian Oil Minister Bijan Zanganeh noted that while the field contained 53 billion barrels, only 2.2 billion barrels are technically recoverable with existing Iranian technology. In other words, Iran would be adding 2.2 billion to its existing oil reserves.
This field, the Namavaran oilfield, spans 2,400 square kilometers, and exploration was launched in 2016. Since then, 53 billion barrels of oil have been discovered - 31 billion barrels that had been announced earlier, and another 22 billion barrels now added through new estimates. Rouhani needs a victory himself, so he's spinning 53 billion barrels as a new discovery. It makes for fabulous headlines.
But there's still no reason to discount the size of the potential here. Yes, 2.2 billion barrels are technically recoverable - but that's by Iranian state oil. They don't have the technology to make the most of this. However, 2.2 billion barrels could end up becoming a lot more with advanced technology capable of greater extractive recovery in an oil play that is nearly two miles deep. If the West isn't listening, someone else definitely is.
Massive Oil & Gas Projects At Stake in Bolivia
On Monday, long-time Bolivian President Evo Morales was forced to resign and is now hiding out in Mexico, leaving this major gas-exporting country in dangerous limbo. Morales lost his footing after mass protests broke out following the October 20th presidential elections in which he was controversially seeking a fourth term in office. At stake are some major projects that are now hostage to the chaotic whims of a caretaker government that has to usher in new elections quickly.
At stake are major projects by Spanish Repsol, the top private producer in Bolivia, along with Shell, which is working on the Jaguar exploration well. Major lithium projects are also being threatened - but those had already stalled under Morales. Unconfirmed statements from analysts and former Bolivian officials claim that Shell, Total SA and Repsol have all stopped drilling or have limited drilling while waiting for clarify; however, none of the companies has confirmed this.
There will likely be much deeper regional reverberations here, which is exactly why Argentina's new president-elect, Alberto Fernandez, takes issue with Trump's statement on Morales' resignation at the orders of the Bolivian military. Trump suggested that what happened to Morales was a signal to other Latin American countries that "democracy and the will of the people will always prevail". That's why Mexico granted Morales asylum and welcomed him with open arms and some heartwarmingly staged photo ops. None of Bolivia's neighbors can afford to make it seem this easy to depose a leader. Fernandez has to clean up an economic disaster in Argentina and he needs everyone on board. Venezuela's Maduro is hoping this won't further embolden the opposition and those in the military who haven't deserted him, and so on. Their stance absolutely must be that Morales was illegally deposed because what's happening in the region right now is similar to the 'Arab Spring'. If it works once, it will work again.
Global Oil & Gas Playbook
- Chevron has completed the divestiture of its North Sea oilfields to Delek's Ithaca for $1.75 billion. This is a bigger deal for Ithaca than it is for Chevron, increasing the smaller energy company's proven reserves by 150%, and quadrupling its production to 80,000 boepd, setting it on an international course from its typically local course.
- The European Union has agreed to some undetailed sanctions against Turkey over its drilling offshore Cyprus. This is another non-move by Brussels, though, as it largely just attempts to appease EU member Cyprus with a bunch of paperwork. The EU has established a "framework" (a favorite EU catchphrase) for travel bans and asset freezes; however, no one and no entity specifically has been sanctioned. Last week, we noted that Turkey scored yet another victory when Italian Eni reiterated that it had no desire to start drilling if warships were going to be involved, with reference to Cyprus offshore Block 7.
- The U.S and the United Nations are calling on Iraq to hold early elections in order to end mass protests and state violence against those protesters that threatens to spiral out of hand and create untenable instability. Well over 300 people have been killed in the violence so far. The horse jockeying is now in full force, and Iran is the master of this game right now, but its grip is not as tight as Tehran would like it to be. Iraqi PM Adel Abdul Mahdi had already agreed to step down, but Iran is maneuvering to keep him in place in order to maintain a fragile balance that Tehran ultimately controls. For now, the plan is to offer a list of reforms and elections next year, but so far there is no indication this is going to end protests or even dilute them in any way.
- The government of Guyana is now looking for an agency to market its share of the crude produced from Exxon Mobil's Liza project, which has moved up first production to December this year. The government is preparing to issue a tender for an agent, with a crude lifting agreement expected to be signed in the very near future. Exxon will produce around 120,000 bpd starting in December. This is Guyana's first oil. The government will receive its first share of oil in Q1 2020.