Trade War Overshadows Iran Seized Tanker and Bullish Oil Fundamentals

Iran seized a tanker and it is not the top story in The Energy Report
Trade War overshadows bullish oil fundamentals
People's Bank of China (PBOC) currency beyond 7 yuan per U.S. dollar
The Energy Report

The Energy Report


The Energy Report - August 5, 2019

Trade Spat Tit for Tat


A trade war tit for tat is overshadowing bullish fundamentals for the oil market and even with the fact that Iran detained another oil tanker over the weekend. Trade war fallout is shaking down the oil market as China lashes back at the U.S. After President Donald Trump threatened to slap China with an additional 10% tariff on Chinese goods, China has ordered its state-owned enterprises to suspend imports of all U.S. agricultural products. On top of that, the People's Bank of China set its daily reference rate for the Chinese yuan at 6.9225, the lowest rate since December. 


The People's Bank of China (PBOC) attributed the weakening of the currency beyond 7 yuan per U.S. dollar to many factors including measures of unilateralism and protectionism, as well as the expectation of additional tariffs on Chinese goods. "The PBOC has the experience, confidence, and capability of keeping the yuan's exchange rate basically stable at a reasonable and balanced level," the PBOC said. Of course, investors in China have to be worried. This obviously breaks the World Trade Organization (WTO) rulers and could cause a flight of capital out of China. The move will undoubtedly inspire tougher sanctions from the U.S. More than likely the 10% tariff that was previously announced will go to 25%. There may be also new crackdowns on Chinese technology companies. The turmoil and the fear will shake things and the market may overreact but it should find its stability in a matter of days.  


Did you ever think you would see the day where Iran seized a tanker and it is not the top story in The Energy Report? Well, today is that day. Reuters reported that Iranian Revolutionary Guards seized an Iraqi oil tanker in the Gulf which they said was smuggling fuel and detained seven crewmen. Iran’s state media reported the seizure on Sunday, in a show of power amid heightened tension with the West. The Iranian provocation is taking a backseat to other news that is still bullish for oil. There is a real risk premium that will be built-in. Yet trade war fears are having people give in to fears of slowing demand and seasonal weakness may be offset by continued U.S. crude draws. Saudi Arabia has lowered its price to Asia to pick up some market share. 


Natural gas is still in trouble. A big August cool down in the south should allow supply to grow at a hefty pace. Yes, natural gas can go lower and it more than likely will.  




About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.