Friday, July 31, 2020

South section of China-Russia east-route natural gas pipeline starts con...

Exxon shares fall after it loses money for a second straight quarter

Low fuel prices at Exxon Mobil

  • On Friday Exxon posted its second straight quarterly loss.
  • The oil giant lost $1.1 billion during the second quarter amid “global oversupply and COVID-related demand impacts.”
  • “The global pandemic and oversupply conditions significantly impacted our second quarter financial results with lower prices, margins, and sales volumes,” said Darren Woods, Exxon CEO, in a statement.
xxon said on Friday that it lost $1.1 billion during the second quarter amid “global oversupply and COVID-related demand impacts.” It was the oil giant’s second straight quarter of losses.

The company lost 70 cents per share on an adjusted basis, while revenue came in at $32.61 billion. In the same quarter a year ago, Exxon earned 73 cents per share, on revenue of $69.09 billion.

Analysts expected the company to report a loss of 61 cents per share for the second quarter, and revenue of $38.157 billion, according to estimates from Refinitiv.

Shares of Exxon were about 1% lower during early trading on Friday. 

“The global pandemic and oversupply conditions significantly impacted our second quarter financial results with lower prices, margins, and sales volumes,” said Darren Woods, Exxon CEO, in a statement.

“We have increased debt to a level we feel is appropriate to provide liquidity, given market uncertainties. Based on current projections, we do not plan to take on any additional debt,” he added.

Oil-equivalent production fell 7% year-over-year, and the company said average prices for crude oil and natural gas were “significantly lower” than in the same quarter a year earlier.

West Texas Intermediate, the U.S. oil benchmark, is down more than 30% this year, which has forced energy companies to slash spending and in some cases, cut their dividend.

But ahead of its quarterly results, Exxon once again reiterated that it has no plans to cut its dividend.

The third quarter dividend will be 87 cents, according to a company statement released Wednesday.

In the first quarter the oil giant lost $610 million due to $2.9 billion in write-downs tied to falling oil prices. Exxon posted a GAAP loss of 14 cents per share, and a non-GAAP profit of 53 cents per share.

Revenue fell to $56.16 billion.

Shares of Exxon are down 40% this year.

Thursday, July 30, 2020

Maritime cyber attacks increase by 900% in three years

Cyber-attacks on the maritime industry’s operational technology (OT) systems have increased by 900% over the last three years with the number of reported incidents set to reach record volumes by year end.

Addressing port and terminal operators during an online forum last week, Robert Rizika, Naval Dome’s Boston-based Head of North American Operations, explained that in 2017 there were 50 significant OT hacks reported, increasing to 120 in 2018 and more than 310 last year. He said this year is looking like it will end with more than 500 major cyber security breaches, with substantially more going unreported.

Speaking during the 2020 Port Security Seminar & Expo, a week-long virtual conference organised by the American Association of Port Authorities, Rizika said that since NotPetya – the virus that resulted in a US$300 million loss for Maersk – “attacks are increasing at an alarming rate”.

Recalling recent attacks, he told delegates that in 2018 the first ports were affected, with Barcelona, then San Diego falling under attack. Australian shipbuilder Austal was hit and the attack on COSCO took down half of the shipowner’s US network.

He said this year a US-based gas pipeline operator and shipping company MSC have been hit by malware, of which the latter incident shut down the shipowner’s Geneva HQ for five days. A US-based cargo facility’s operating systems were infected with the Ryuk ransomware, and last month the OT systems at Iran’s Shahid Rajee port were hacked, restricting all infrastructure movements, creating a massive back log.

Reports of this attack have gone some way in raising public awareness of the potential wider impact of cyber threats on ports around the world. Intelligence from Iran, along with digital satellite imagery, showed the Iranian port in a state of flux for several days. Dozens of cargo ships and oil tankers waiting to offload, while long queues of trucks formed at the entrance to the port stretching for miles, according to Naval Dome.

Emphasizing the economic impact and ripple effect of a cyber-attack on port infrastructures, Rizika revealed that a report published by Lloyd’s of London indicated that if 15 Asian ports were hacked financial losses would be more than US$110 billion, a significant amount of which would not be recovered through insurance policies, as OT system hacks are not covered.

Going on to explain which parts of the OT system – the network connecting RTGs, STS cranes, traffic control and vessel berthing systems, cargo handling and safety and security systems, etc., – are under threat, Rizika said all of them.

“Unlike the IT infrastructure, there is no “dashboard” for the OT network allowing operators to see the health of all connected systems. Operators rarely know if an attack has taken place, invariably writing up any anomaly as a system error, system failure, or requiring restart.

“They don’t know how to describe something unfamiliar to them. Systems are being attacked but they are not logged as such and, subsequently, the IT network gets infected,” Rizika explained.

“What is interesting is that many operators believe they have this protected with traditional cyber security, but the fire walls and software protecting the IT side, do not protect individual systems on the OT network,” he said.

An example would be the installation of an antivirus system on a vessel bridge navigation system (ECDIS) or, alternatively, a positioning system in a floating rig DP (Dynamic Positioning), or on one of the dock cranes on the pier side of the port.

“The antivirus system would very quickly turn out to be non-essential, impairing and inhibiting system performance. Antivirus systems are simply irrelevant in places where the attacker is anonymous and discreet,” he said.

“Operational networks, in contrast to information networks, are measured by their performance level. Their operation cannot be disconnected and stopped. An emergency state in these systems can usually only be identified following a strike and they will be irreparable and irreversible.”

Where OT networks are thought to be protected, Rizika said they are often inadequate and based on industrial computerised system, operating in a permanent state of disconnection from the network or, alternatively, connected to port systems and  the equipment manufacturer’s offices overseas via RF radio communication (wi-fi) or a cellular network (via SIM).

“Hackers can access the cranes, they can access the storage systems, they can penetrate the core operational systems either through cellular connections, wi-fi, and USB sticks. They can penetrate these systems directly.”

Rizika said that as the maritime industry moves towards greater digitalisation and increases the use of networked, autonomous systems, moving more equipment and technologies online, more vulnerabilities, more loopholes, will be created.

“There will be a whole series of new cyber security openings through which people can attack if systems are not properly protected.

“If just one piece of this meticulously-managed operation goes down it will create unprecedented backlog and impact global trade, disrupting operations and infrastructure for weeks if not months, costing tens of millions of dollars in lost revenues.”

Naval Dome also predicts that cyber criminals, terrorists and rogue states will at some point begin holding the environment to ransom. “One area we see becoming a major issue is cyber-induced environmental pollution. Think about it: you have all these ships in ports, hackers can easily over-ride systems and valves to initiate leaks and dump hazardous materials, ballast water, fuel oil, etc.,” Rizika warned.

Offering advice on the first steps port operators need to take to protect their OT systems, he said a deep understanding of the differences between the two spaces is vital.

“There is a disconnect between IT and OT security. There is no real segregation between the networks. People can come in on the OT side and penetrate the IT side. We are actually seeing this now. Successful IT network hacks have their origins in initial penetration of the OT system.”

In a pre-recorded message broadcast during Naval Dome’s presentation, Rear Admiral (Retd) Shiko Zana, the CEO of Ashdod Port, said: “We have become more aware of the growing cyber threat to OT systems. Naval Dome has a unique cyber defence solution capable of protecting against both internal and external cyber attack vectors. The solution provides protection for OT systems.”

Wednesday, July 29, 2020

First Major New U.S. Oil Refinery Since 1977 Targets Bakken Shale Crude


Many years have passed since the last large greenfield refinery was built in the continental United States. It has been 43 years, in fact, since Marathon Petroleum opened its spanking-new 200,000 barrel of oil per day (bopd) refinery in Garyville, Louisiana in 1977.

Since that time, growing environmental restrictions have made obtaining permits for new refining operations from state and federal government agencies increasingly difficult and costly. The inevitable raft of litigation that follows the issuance of any permits also increases the costs and adds to time delays. Many such projects have tried to get off the ground during those intervening 43 years, but the planners of them have all ended up losing what has become a strategic war of attrition. 

Onto this often-tedious battlefield now steps William Prentice, Chairman and CEO of Meridian Energy Group, who I interviewed early in July after his company had received word that the North Dakota Supreme Court had upheld the air quality permit, originally issued in June, 2018, enabling MEG to proceed with the building of a new, 49,500 bopd capacity refinery smack in the middle of the Bakken Shale play in North Dakota. Ok, well, he actually stepped onto the battlefield way back in 2013, a year after MEG was started, and the permitting effort was kicked off five years ago.

“Yeah, we’re having fun now,” Prentice laughed when I asked him to talk about the concept behind his refinery project. “We took the long way around to get where we are.”

The concept behind MEG’s refinery is simple: Put the refinery in the middle of a massive oil play area, and specialize in processing the grade of crude that comes out of those thousands of wells. As simple as that sounds, it represents a pretty radical departure from the U.S. refining business of the 20th century. “The refinery model for most of the last century was to put increasingly complex refining operations on the Gulf coast, where you could grab whatever tanker was going by and make a buck or two,” Prentice explained, “and that was fine. There seemed to be this growing assumption during the middle part of the century that most of the oil was going to be coming from offshore anyway, so why try to put anything inland? 

“But the shale industry changed all of that virtually overnight. It wasn’t too long ago – I think it was November/December of last year – one industry leader was quoted as saying that ‘any additional barrel of shale oil coming online would have to be exported.’ There was just no refining capacity that could handle the lighter grades of crude.

“So, our concept is to build refineries that are very capital efficient because they are rifle-shot designs that target a local shale resource. And we’ll process that local crude oil and serve that regional market. We’ll get the crude at a better price, and also have lower operating and capital costs per barrel. And you save all the transportation of moving the crude down to the Gulf and then bringing it back again in the form of refined product.” 

Simple, right? Seemingly so, but this concept, if widely applied, would help to resolve a growing imbalance between the U.S. volume of light, sweet crude being produced from the nation’s big shale plays and the lack of capacity in the U.S. refining business to process that crude. That imbalance is what created the need to export millions of barrels of domestic crude each day to be refined in other countries. Prentice and MEG hope to target that imbalance with a series of greenfield refineries in the coming years. 

“The Davis [Bakken] Refinery is our first, but we are also looking at a site for a second one in the Permian area,” he told me. “We have also been looking at a site near Cushing, Oklahoma. So, we’re going to be sort of the serial killers of the refinery industry.” 

Well aware of how many proposed new refining plans had died on the vine without being built since 1977, Prentice knew that he and his team would have to settle on a model that not only satisfies all regulatory environmental requirements at the state and federal levels, but also sets a new environmental paradigm for the industry. One complicating factor in the permitting process for the North Dakota refinery is its close proximity to the Theodore Roosevelt National Park. Prentice said choosing that site was intentional. 

“Being so close to the Teddy Roosevelt National Park, in my innocence, I thought that was a way to demonstrate something that needed to be proven in the industry,” he said. “By being in that area we are forced to meet the Class I attainment standards for air quality, and we had already decided to make this refinery the cleanest in the world. So, I thought, let’s do this at that location and we will prove that you don’t have to kick refineries off into some industrial area – you can put them where they need to be, and they can just be clean plants.” 

Prentice said the anticipated lawsuits materialized immediately after the company received its air quality permit from the state of North Dakota. “We started the permitting process in 2015, submitted the air quality permit application in October 2016. We got that air quality permit after making several design changes to further reduce emissions in June of 2018. The first lawsuit was filed about 15 seconds after we got that permit, and we have been litigating on four different permit issues for the last two years.”

MEG won the final Supreme Court decision on the air quality permit in June. “Part of the deal was that we would build a grassroots full-conversion refinery that would meet the requirements for a synthetic minor source,” Prentice told me, “which enables us to do all our permitting at the state level. The North Dakota Air Quality Division consulted with EPA, but EPA was not in the decision-making capacity, though they did provide technical support. 

“But we went through the ringer, especially since all the controversy around the Dakota Access Pipeline had been going on at the same time, with all of those big demonstrations. When we got the draft permit and it was put out for comment, they got back more than 10,000 comments, and each one of them had to be answered. That took a long time.” 

Keeping the permitting process as simple as possible and at the state level was also the driving force behind the project permitted capacity. “We sized the North Dakota plant at 49,500 bopd because anything 50,000 barrels or above has to get an additional permit from the Public Service Commission similar to a power plant siting. So, we decided 5 years was long enough to be permitting, let’s just knock that out. 

“Actually, there is still a lawsuit before the North Dakota Supreme Court that is trying to get the Court to change the math and pretend like we’re over 50,000 barrels per day. But I’m comfortable the Court knows how to add, so we’re pretty confident about that.” 

With the permits in place, Prentice and his team now move into the funding phase of the project, which he expects to take about 6 months. The satisfying of ESG considerations applied by financial institutions inevitably complicates any major funding effort in the energy space today, and this refinery effort is no different. But Prentice is confident, in part because the Davis Refinery makes such a leap in the control of emissions. 

“Total emissions from our plant will be about 1/10th of the industry average on a per-barrel basis, and greenhouse gases coming off the refinery are less than half of the industry average,” he said. “So, ESG is a pretty important consideration these days, and many of the institutions we are going to be accessing for this project have signed onto the Equator principles which govern ESG types of considerations for an energy project. 

“We went through the ringer with both our investment bankers in the last year, documenting that we are fully in compliance with the Equator Principles. It was almost like getting another permit, and we passed with flying colors. When you’re a startup company developing a refinery, you not only have to cultivate a market for your product, you also have to cultivate a market for your securities.” 

Once the project funding is complete around the first of 2021, Prentice says the actual construction of the plant itself will take about 3 years, allowing America’s first new greenfield refinery in almost half a century to kick off operations in early 2024, a dozen years after the planning phase began. While the completion of the Davis Refinery will represent a huge achievement for his company, Prentice also views it as a much-needed success for the industry as a whole. 

“The industry’s got to change,” he said. “The power business went through a spasm of reorganization 30 years ago, all for the benefit of consumers. It’s the way American industry is supposed to work. When you’re talking about everybody wanting to develop their shale assets and none of that can be processed in the United States, it just seems crazy. 

“So, here we are.”

Tuesday, July 28, 2020

Goldman Sachs has a new blowout forecast for gold

Getty Images

A weaker day is setting up for stocks on Tuesday, as optimism over U.S. stimulus progress and vaccine news starts to fade, and attention turns to the start of a two-day Federal Reserve meeting.

The asset that stole the show on Monday, of course, was gold GCQ20, 0.67%, which climbed to $1,931 an ounce, the highest settlement in history. That juiced the crowd expecting $2,000 an ounce soon, and leads us to our call of the day from Goldman Sachs, which has ditched its own $2,000 forecast and says we’re going to see $2,300 an ounce in the next 12 months. 

The bank also lifted its silver outlook to $30 from $22 an ounce.

Driven by “a potential shift in the U.S. Fed toward an inflationary bias against a backdrop of rising geopolitical tensions, elevated U.S. domestic political and social uncertainty, and a growing second wave of COVID-19 related infections,” gold’s surge to new highs lately has outpaced gains for real rates and other alternatives to the dollar, said a team of analysts led by Jeffrey Currie.

“Combined with a record level of debt accumulation by the U.S. government, real concerns around the longevity of the U.S. dollar as a reserve currency have started to emerge,” said the team. 

One point made by Currie and the team is that hedges against inflation like commodities and stocks are likely far cheaper currently, than maybe in the future when inflation could start to show up. Current debasement — lowering the value of currencies — and debt accumulation “sows the seeds for future inflationary risks despite inflationary risks remaining low today.”

Gold is up around 7% over the past month, versus a 3.7% drop for the ICE U.S. Dollar Index DXY, -0.01%. That said, gold seems to have paused that run on Tuesday, while the dollar has inched up. 

Analysts at Commerzbank caution that record-high prices for gold will weigh on important physical demand for some time, notably from Asia, with China reporting a 38% drop in first-half consumption this year. “Much will therefore depend on whether investors in the West remain willing to buy large quantities of gold even at the current prices,” said analyst Carsten Fritsch. 

Goldman’s Currie isn’t that concerned though, as he said emerging market currencies are starting to see an ease in pressure and growth is starting to look up for the region. He sees those buyers will be ready to step in when prices stabilize and developed market purchasers run out of gas.


Monday, July 27, 2020

PetroChina to Sell Major Pipeline Assets to PipeChina for $38 Bln

East Asia oil, gas and products pipelines map - Click on map to enlarge

Beijing started considering reforming the sector nearly a decade ago but only approved the plans early 2019, spurred by a national campaign to boost consumption of the cleaner burning natural gas and curb dirtier coal.

PetroChina, China’s state-owned oil and gas firm, said on Thursday it would sell its major oil and gas pipelines and storage facilities to the newly launched China Oil and Gas Pipeline Network for 268.7 billion yuan ($38.36 billion). 
The creation of the new company, also called PipeChina, marks the largest industry reshuffle in the country in the past two decades, aimed at providing fair market access to infrastructure and boost investment in oil and gas production.

Beijing started considering reforming the sector nearly a decade ago but only approved the plans early 2019, spurred by a national campaign to boost consumption of the cleaner burning natural gas and curb dirtier coal.

As part of Thursday’s deal, PetroChina said it will get a stake of about 30 per cent, worth 149.5 billion yuan, in PipeChina and that the new entity would pay the rest in cash.

The sale excludes the assets of Kunlun Energy, in which PetroChina has a 54.4 per cent stake, it said in a statement. Upon completion of the transactions, PipeChina will become an associate company of PetroChina, a listed arm of CNPC.

PetroChina expects to book a gain of 45.82 billion yuan from the disposal of its assets, which it will use to pay dividend and for capital expenditure, it said in a statement.

Earlier in the day, China Petroleum & Chemical Corp (Sinopec) also announced plans to sell some of its oil and gas pipeline assets for 47.11 billion yuan to PipeChina, of which 22.89 billion yuan will be injected into PipeChina for an equity interest.

Friday, July 24, 2020

Oil Price Outlook: OPEC Cuts, America Steps On The Gas

Landscape image of a oil well pumpjack wiith an early morning golden sunrise and American USA red White and Blue background. A is the overground drive for a reciprocating piston pump in an well. - by James BO Insogna Oilfield Man, Oilfield Trash, Oilfield Quotes, Oil Field Jobs, Flag Background, Vector Background, Oil Industry, Industry Trends, Drilling Rig

Oil prices have been caught in a battle of demand loss and supply cuts.

Prices have risen off the April lows but now are facing more challenges to break through to new highs.

We remain very bullish for the years 2021-2022, but short term, there are some challenges.
We dissect out what will project the outcome for our readers.

This idea was discussed in more depth with members of my private investing community, High Dividend Opportunities. Get started today »
Co-produced with Trapping Value

When we last dissected the fundamentals for oil in a recent article, we left with the message that there were some serious near-term headwinds. While the supply picture was improving (or bullish), demand was still far from having recovered. With a few more weeks of data under our belt, we took a look to see where the balance is headed into the second half of the year.

The Price Structure

We begin this analysis by looking at Futures quotes on West Texas Intermediate Oil prices.
 Source: Futures Trading

The current structure has a gentle slope of Contango. Contango essentially means that prices for months further out are actually higher than the current month. This is a marked improvement from three months back when we had a "Super Contango." Spot prices had briefly gone negative while prices for each successive month were much higher. Below we see the prices for May, June and November delivery that were hit in April.

What this means is that the extreme price drops in May alongside supply cuts helped clear the market. Not only has the excess been unwound, the market does not see an immediate risk to storage overfilling.

U.S. Supply

On the US side of things, oil drilling in shale basins has come to a standstill and has not responded to the big swing in prices since April. This is extremely positive and will likely help the pricing further out. The Energy and Information Administration ('EIA') data shows that oil production has been declining sharply in the United States since March, but the declines are bottoming out.

Two Forces at Play Today

At present two forces are playing off each other.
  1. In the shorter term uneconomical production (that's production with a marginal cost of production below spot price) that was turned off is coming back on. Why did this not happen sooner? After all, prices have been near $40/barrel for some time. The reason is that in many cases barrels have to be "nominated" for pipeline transport up to a month in advance. So there's a little lag in responding to price signals. This part of the production is headed up and should max out in the July or August numbers.
  2. On the other side of the equation, the lack of drilling and well completions are taking down the base production numbers slowly for the shale region.
As long as prices hold near $40/barrel, we expect US production to resume its decline after August.

Global Non-OPEC Supply

Global rig counts stand today at half the levels of a year ago. Stand outs include Canada with an almost 90% drop year over year.

Source: Baker Hughes

These rig cut decisions are made with a multi-month outlook and not prone to reverse due to a sudden spike in prices. This validates our stance that the latter part of 2021 and 2022 will see a severe supply crunch.

OPEC Supply

If OPEC gets nothing else out of COVID-19, they will get this for sure. COVID-19 was the time when OPEC functioned at peak efficiency. OPEC 10 produced 19.81 million barrels per day in June, the lowest on Argus' record. The table below depicts oil production per OPEC country and their compliance cuts in percentage. A compliance of 100% means that this specific country has fully complied with the requested production cuts.

Source: Argus Media

Three smaller countries missed their targets by a mile but compliance was at 113% overall (or over-compliance by 13%). Notably Iraq, the worst of the bunch by a country mile, finally started complying and delivered 85% of the promised supply cuts. Nigeria was still behind and received several warnings from other OPEC members that it had to either step up or possibly face consequences. Under relentless pressure, Nigeria too has committed to meeting its target by mid July.
While Venezuela was not given a quota, its production free fall is helping OPEC achieve its objectives. Venezuela began July with zero rigs in the ground and production of just 300,000 barrels per day. This is even below internal consumption estimates and down from about 800,000 barrels per day a year ago. From the oil bulls' perspective, there's a lot of permanent damage to these heavy oil plays and a big rebound is unlikely even if prices rise significantly.

The Demand Side

The demand picture was murky in late March but has decidedly shown its hand. US gasoline demand for one has been rebounding like a baseline hit from Novak Djokovic.

Some of it is "pent-up" demand catch up. Some of it is shunning public transportation in the age of COVID-19. Finally, some is replacing flight demand as many smaller routes have been temporarily suspended. Even after all of that, considering an economy built on working from home, this is a very, very impressive rebound!

Jet fuel on the other hand has had a very tepid rebound.

Source: Bloomberg

Globally, the big demand increases in the last few years have come from India and China. In the case of India we are seeing a very lackluster recovery in demand.
Source: Bloomberg

This was expected as the seven-day moving average of Coronavirus cases has increased 13-fold since early May.

Source: Worldometer

China on the other hand is demonstrating rather exceptional demand for this phase of the world economy. Refiners bumped up output and China imported record amounts of crude oil in the last 30 days.

While many doubt China's COVID-19 data, the oil import numbers are validated from external sources as well and suggest that China's rebound is likely stronger than investors are currently pricing in. Globally there continues to be ups and downs in the battle with COVID-19 with Australia just announcing that Melbourne will go into its second lockdown.

Investor Positioning

While the fundamentals are improving, positioning in the futures market has gradually become more negative. Net speculative long positions are on the higher side historically at over 543,000.
Within this group we like to focus on "Managed Money" which is the best proxy for sentiment. Long positions are up sharply since the March bottom while short positions have declined.


This shows that sentiment is strongly bullish on oil prices. This bullishness puts the markets at an increasing risk of a significant pullback, possibly into the low $30s area, in our opinion.


Factors that continue to line up positively for oil are falling US supply and rebounding US gasoline demand. This is buttressed further by exceptional OPEC compliance and falling rig counts globally. Jet fuel remains the strongest outlier of the recovery plan and is pushing demand normalization much further out on the curve. Refiners also are reluctant to bid up crude as margins have been non-existent even in the peak driving season. With refiners on the sidelines, speculators have jumped into the fray. But they will likely be shaken out before we advance higher. Expect $45/barrel to act as a hard ceiling in the next two to three months.

The bottom line is that we remain very bullish on oil price longer term with a price target of +$60 a barrel to be reached in the years 2021-2022. However, shorter term, we are likely to see a pullback.

Investors should use any pullback in oil to add positions in our favorite oil stocks Imperial Oil (IMO) and Whitecap Resources (OTCPK:SPGYF).

For instant diversification in the energy space, we recommend the closed end fund: BlackRock Energy & Resources Trust (BGR). BGR provides exposure to some of the biggest names in the industry including Exxon Mobil (XOM), BP (BP), Royal Dutch Shell (RDS.A) (RDS.B), and Chevron (CVX). BGR currently yields 7.8%.

For income investors looking for super high yields, we are very bullish on some preferred stocks of midstream companies. The following preferred stocks offer extraordinarily fat yields:
  1. The NuStar Energy LP (NS) preferred stocks NS-B (NS.PB) with a yield of +10.9%
  2. The Crestwood Equity Partners (CEQP) preferred stock with a ticker symbol CEQP- (CEQP.PR) with a yield of 14.2%.
The energy sector is likely to be one of the biggest winners over the next 24 months, despite possible short-term headwinds.

Thanks for reading! If you liked this article, please scroll up and click "Follow" next to my name to receive our future updates.

Thursday, July 23, 2020

Nord Stream 2 warns of sanctions risk to gas link completion as European dissent grows

Russia Pledges to Finish Nord Stream 2
  • Would block Eur700 million investment in completing line
  • CAATSA measures can be imposed at US's discretion
  • Opposition to US stance hardening in EU
London — The developer of the Nord Stream 2 gas pipeline said July 20 the investments needed to complete the 55 Bcm/year link could be blocked if the US imposed sanctions against companies involved in the project.

In a hardening of its position against Russian energy export projects, the US State Department on July 15 updated part of its Countering America's Adversaries Through Sanctions Act (CAATSA) legislation from August 2017.

Companies involving in building the Nord Stream 2 link to Germany and the second line of the TurkStream pipeline to southern Europe -- both still under construction -- can now be targeted, whereas before they were exempted from potential measures under the CAATSA legislation.

European opposition to the latest US move has become increasingly strong in recent days, with the EU and governments of individual member states again saying European energy policy was a matter for Europe alone.

Congress is also considering another iteration of Nord Stream 2 sanctions, called the Protecting Europe's Energy Security Clarification Act, which would target more companies involved in building the project's final segment, including vessel insurers and service companies doing surveying, trenching, welding and other tasks.

In emailed comments, a Nord Stream 2 spokesman said US sanctions -- if imposed -- could directly hit more than 120 companies from more than 12 European countries.

"In an economically difficult time, the sanctions would block investments of around Eur700 million ($800 million) for the completion of the pipeline," the spokesman said.

"These sanctions would also undermine investments of approximately Eur12 billion in EU energy infrastructure," he said.

That is made up of Eur8 billion in investments in Nord Stream 2 as well as a further Eur3 billion in investments by European companies in downstream infrastructure in Germany and Eur750 million in the Czech Republic.

Any sanctions to be imposed under the terms of the CAATSA legislation are discretionary, however, and can only be imposed after coordination with US "allies".

Asked directly whether work on completing Nord Stream 2 would be suspended as a result of the latest sanctions guidance, the project spokesman said: "Nord Stream 2 is a fully permitted project, constructed in accordance with applicable national and international legislation."

"A total of over 2,300 km out of approximately 2,460 km of the Nord Stream 2 pipeline had been laid by December 20, 2019, when our contractor Allseas was forced to suspend the pipelay due to the threat of sanctions by the US," he said.

"Therefore, we are forced to look for new solutions to lay the remaining 6% of our pipeline."

European stance

Opposition to the sanctions update from the US's European allies continues to strengthen.

On July 17, the EU High Representative Josep Borrell said he was "deeply concerned" at the growing use of sanctions by the US against European companies and interests.

"As a matter of principle the EU opposes the use of sanctions by third countries on European companies carrying out legitimate business. Moreover, it considers the extraterritorial application of sanctions to be contrary to international law," Borrell said.

The mood among those countries home to five of Nord Stream 2's key investors has also become increasingly reactive.

Five European energy companies -- France's Engie, Austria's OMV, Anglo-Dutch Shell, and Germany's Uniper and Wintershall Dea -- have co-financed the project, each committing to pay Eur950 million.

German foreign minister Heiko Maas said that by announcing measures that threaten European companies with sanctions, "the US Administration is disrespecting Europe's right and sovereignty to decide itself where and how we source our energy".

"European energy policy is decided in Europe and not in Washington," Maas said.

Austria's foreign ministry said it too rejected US moves to threaten extraterritorial sanctions against Nord Stream 2. "Among trusted partners, we believe in direct talks, not unilateral measures," it said.
France went a step further, with a parliamentary official calling on the EU to react.

"It is time for Europe to assert its power. It cannot tolerate such an attack on its energy sovereignty," Claude Kern, rapporteur for the French Senate Committee on European Affairs, said July 17.

The committee said there was no legal justification for "US interference" with companies operating on European soil and that the US may "in no way" sanction companies operating in the EU in accordance with the law of the EU and its member states.

Not all of Europe is unhappy with the US policy, however. Ukraine's Naftogaz said it welcomed the latest sanctions guidance.

"This decision demonstrates US continued support for Ukrainian and European security," it said. "Naftogaz will continue to work closely with US and European partners to counter Nord Stream 2 and protect the collective interests of the transatlantic community."

Nord Stream 2 is crucial to Russian plans to scale down from 2021 the use of the Ukrainian transit corridor in its gas supplies to Europe.

Monday, July 20, 2020

Chevron Acquires Noble Energy in All Stock Transaction

Chevron Corporation announced today that it has entered into a definitive agreement with Noble Energy, Inc. to acquire all of the outstanding shares of Noble Energy in an all-stock transaction valued at $5 billion, or $10.38 per share. Based on Chevron’s closing price on July 17, 2020 and under the terms of the agreement, Noble Energy shareholders will receive 0.1191 shares of Chevron for each Noble Energy share. The total enterprise value, including debt, of the transaction is $13 billion.

The acquisition of Noble Energy provides Chevron with low-cost, proved reserves and attractive undeveloped resources that will enhance an already advantaged upstream portfolio. Noble Energy brings low-capital, cash-generating offshore assets in Israel, strengthening Chevron’s position in the Eastern Mediterranean. Noble Energy also enhances Chevron’s leading U.S. unconventional position with de-risked acreage in the DJ Basin and 92,000 largely contiguous and adjacent acres in the Permian Basin.

“Our strong balance sheet and financial discipline gives us the flexibility to be a buyer of quality assets during these challenging times,” said Chevron Chairman and CEO Michael Wirth. “This is a cost-effective opportunity for Chevron to acquire additional proved reserves and resources. Noble Energy’s multi-asset, high-quality portfolio will enhance geographic diversity, increase capital flexibility, and improve our ability to generate strong cash flow. These assets play to Chevron’s operational strengths, and the transaction underscores our commitment to capital discipline. We look forward to welcoming the Noble Energy team and shareholders to bring together the best of our organizations.”

“This combination is expected to unlock value for shareholders, generating anticipated annual run-rate cost synergies of approximately $300 million before tax, and it is expected to be accretive to free cash flow, earnings, and book returns one year after close,” Wirth concluded.

“The combination with Chevron is a compelling opportunity to join an admired global, diversified energy leader with a top-tier balance sheet and strong shareholder returns,” said David Stover, Noble Energy’s Chairman and CEO. “Over the last few years, we have made significant progress executing our strategic objectives, including driving capital efficiency gains onshore, advancing our offshore conventional gas developments and significantly reducing our cost structure. As we looked to build on this positive momentum, the Noble Energy Board of Directors and management team conducted a thorough process and concluded that this transaction is the best way to maximize value for all Noble Energy shareholders. We look forward to bringing together our highly complementary cultures and teams to realize the long-term value and benefits that this combination will deliver.”

Transaction Benefits

Low cost acquisition of proved reserves and attractive undeveloped resource: Based on Noble Energy’s proved reserves at year-end 2019, this will add approximately 18 percent to Chevron’s year-end 2019 proved oil and gas reserves at an average acquisition cost of less than $5/boe, and almost 7 billion barrels of risked resource for less than $1.50/boe.

Strong Strategic Fit: Noble Energy’s assets will enhance Chevron’s portfolio in:


Israel – Large-scale, producing Eastern Mediterranean position that diversifies Chevron’s portfolio and is expected to generate strong returns and cash flow with low capital requirements.

West Africa – Strong position in Equatorial Guinea with further growth opportunities.

Attractive Synergies: The transaction is expected to achieve run-rate operating and other cost synergies of $300 million before-tax within a year of closing.

Accretive to Return on Capital Employed, Free Cash Flow, and EPS: Chevron anticipates the transaction to be accretive to ROCE, free cash flow and earnings per share one year after closing, at $40 Brent.

U.S. onshore

DJ Basin – New unconventional position with competitive returns that can be further developed leveraging Chevron’s proven factory-model approach.
Permian Basin – Complementary acreage that enhances Chevron’s strong position in the Delaware Basin.
Other ­– An integrated midstream business and an established position in the Eagle Ford.

The acquisition consideration is structured with 100 percent stock utilizing Chevron’s attractive equity currency while maintaining a strong balance sheet. In aggregate, upon closing of the transaction, Chevron will issue approximately 58 million shares of stock. Total enterprise value of $13 billion includes net debt and book value of non-controlling interest.

The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close in the fourth quarter of 2020. The acquisition is subject to Noble Energy shareholder approval. It is also subject to regulatory approvals and other customary closing conditions.

The transaction price represents a premium of nearly 12% on a 10-day average based on closing stock prices on July 17, 2020. Following closing of the transaction, Noble Energy shareholders will own approximately 3% of the combined company.

Credit Suisse Securities (USA) LLC is acting as financial advisor to Chevron. Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal advisor to Chevron. J.P. Morgan Securities LLC is acting as financial advisor to Noble Energy. Vinson & Elkins LLP is acting as legal advisor to Noble Energy.

Friday, July 17, 2020

U.S. Threatens New Sanctions On Russian Gas Projects: ‘Get Out Now’

Trump, Putin talk G-7 plans

The United States has warned companies helping Russia to complete the Nord Stream 2 and the TurkStream 2 natural gas pipelines that they should ‘get out now’ or face consequences, as the Trump Administration steps up efforts to stop the construction of the controversial Russia-led pipelines in Europe.

The U.S. Department of State is updating its sanctions guidance under the Countering America's Adversaries Through Sanctions Act, CAATSA, to include Nord Stream 2 and the second line of TurkStream 2, U.S. Secretary of State Mike Pompeo said at a press briefing on Wednesday. 

“This action puts investments or other activities that are related to these Russian energy export pipelines at risk of U.S. sanctions. It’s a clear warning to companies aiding and abetting Russia’s malign influence projects will not be tolerated. Get out now, or risk the consequences,” Secretary Pompeo said.

The projects are the “Kremlin’s key tools to exploit and expand European dependence on Russian energy supplies, tools that undermine Ukraine by cutting off gas transiting that critical democracy, a tool that ultimately undermines transatlantic security,” he added, reiterating the U.S. view that the Nord Stream 2 project is further undermining Europe’s energy security by giving Russian gas giant Gazprom another pipeline to ship its natural gas to European markets. 

The U.S. has already imposed some sanctions on the project, which saw Western vessel and technology providers pull out of the project in December 2019. Following the announcement of the sanctions, Switzerland-based offshore pipelay and subsea construction company Allseas immediately suspended Nord Stream 2 pipelay activities.

Earlier this month, a Russian vessel capable of completing the pipelaying for Nord Stream 2 left a German port and entered Danish waters where the last section of the controversial pipeline has yet to be completed. This occurred several days after the Danish Energy Agency allowed Nord Stream 2 AG to use pipelaying vessels with anchors for the construction of the Nord Stream 2 pipelines. With an anchored Russian vessel, Gazprom could complete the construction of the pipeline in Danish waters.

By Tsvetana Paraskova for

Thursday, July 16, 2020

Group says tanker off UAE sought by US for Iran sanction-busting was ‘hijacked

An Iranian military speedboat patrols the waters as a tanker prepares to dock at the oil facility on Khark Island, Iran, on March 12, 2017. (Atta Kenare/AFP)
Illustrative: An Iranian military speedboat patrols the waters as a tanker prepares to dock at the oil facility on Khark Island, Iran, on March 12, 2017. (Atta Kenare/AFP)

Satellite images show Dominica-flagged MT Gulf Sky in Iranian waters; captain confirms seizure to rights group

DUBAI, United Arab Emirates (AP) — An oil tanker sought by the US over allegedly circumventing sanctions on Iran was hijacked on July 5 off the coast of the United Arab Emirates, a seafarers organization said Wednesday. 

Satellite photos showed the vessel in Iranian waters on Tuesday and two of its sailors remained in the Iranian capital.

It wasn’t immediately clear what happened aboard the Dominica-flagged MT Gulf Sky, though its reported hijacking comes after months of tensions between Iran and the US.

David Hammond, the CEO of the United Kingdom-based group Human Rights at Sea, said he took a witness statement from the captain of the MT Gulf Sky, confirming the ship had been hijacked. 

Hammond said that 26 of the Indian sailors on board had made it back to India, while two remained in Tehran, without elaborating. 

“We are delighted to hear that the crew are safe and well which has been our fundamental concern from the outset,” Hammond told The Associated Press.

Hammond also said that he had no other details on the vessel., a website tracking the oil trade at sea, said it saw the vessel in satellite photos on Tuesday in Iranian waters off Hormuz Island. 

The Emirati government, the US Embassy in Abu Dhabi and the US Navy’s Bahrain-based 5th Fleet did not immediately respond to requests for comment. 

In May, the US Justice Department filed criminal charges against two Iranians, accusing them of trying to launder some $12 million to purchase the tanker, then named the MT Nautica. The vessel then took on Iranian oil from Kharg Island to sell abroad, the US government said. 

Court documents allege the scheme involved the Quds Force of Iran’s paramilitary Revolutionary Guard, which is its elite expeditionary unit. 

“Because a US bank froze the funds related to the sale of the vessel, the seller never received payment,” the Justice Department said. “As a result, the seller instituted a civil action in the UAE to recover the vessel.”

That civil action was believed to still be pending, raising questions of how the tanker sailed away from the Emirates.

Meanwhile, the 28 Indian sailors on board the vessel found themselves stuck on board without pay for months, according to the International Labor Organization. It filed a report saying the vessel and its sailors had been abandoned by its owners since March off the Emirati city of Khorfakkan.

Wednesday, July 15, 2020

OPEC faces ‘worst of both worlds’ with oil prices in limbo ahead of committee meeting

Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman Al-Saud speaks via video link during a virtual emergency meeting of OPEC and non-OPEC countries, following the outbreak of the coronavirus disease (COVID-19), in Riyadh, Saudi Arabia April 9, 2 
 Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman Al-Saud speaks via video link during a virtual emergency meeting of OPEC and non-OPEC countries, following the outbreak of the coronavirus disease (COVID-19), in Riyadh, Saudi Arabia April 9, 2020.
Saudi Press Agency | Reuters
  • The oil demand outlook for 2021 is “a car crash” thanks to the coronavirus pandemic, one expert told CNBC, despite it being the largest single-year jump on record. 
  • Brent crude has hovered in the $40-$45 per barrel range for the last five weeks, signalling a substantial recovery from its multi-decade trough of around $19 per barrel in March.
  • Still, the figure is not enough for many OPEC producers to boost their hard-hit economies.
OPEC is facing “the worst of both worlds” with the current oil market demand outlook, S&P Global Platts’ head of EMEA news said Wednesday ahead of the group’s Joint Ministerial Monitoring Committee (JMMC), where it will announce recommendations for production policy along with its non-OPEC allies.

“This demand issue is really key here,” Andy Critchlow, a long time oil market veteran, told CNBC’s “Squawk Box Europe,” pointing to the 13-member organization’s outlook for global oil demand next year at 97.7 million barrels per day.

“That’s a car crash. Let’s face it… this is not a great look for the outlook for oil.”

While the figure is expected to mark the largest one-year jump ever recorded, it’s significantly below the already lukewarm demand figure of 99.8 million bpd recorded at the end of 2019, pre-coronavirus. And it’s a dire forecast for producers who have invested billions of dollars in boosting production capacity. For OPEC, that’s significant spare capacity that will be left untapped.

International benchmark Brent crude has hovered in the $40-$45 per barrel range for the last five weeks, signalling a substantial recovery from its multi-decade trough of around $19 per barrel in March brought on by global coronavirus lockdowns and a Saudi-Russia oil price war. But the commodity still remains in correction territory, down more than 30% year-to-date and at a level Critchlow says paints a “bleak picture” for the alliance.

Not only that — it’s also just enough for some U.S. shale operations to survive, he said, providing some oxygen to OPEC’s American competitors. The higher the prices, the greater relief for shale.

“Brent hovering around, you know, $40, $45 a barrel at the moment, that’s not good for OPEC,” he said. “That doesn’t get them there economically. And even worse, around $45 a barrel, that’s enough to kind of keep the U.S. oil industry, the shale revolution on its legs. So you’ve kind of got the worst of both worlds for OPEC.“

On the other hand, extending the historic production cuts of 9.7 million bpd that the OPEC and non-OPEC alliance began in May could be seen as self-defeating, pushing prices too high and derailing the fragile demand recovery of the past several weeks.

Wednesday’s JMMC meeting will deliberate how to proceed on the cuts, with markets largely expecting that the previously agreed plan to reduce cuts to 7.7 million bpd — adding roughly 2 million bpd of crude back onto the market — will be implemented from August 1. 

“They (OPEC) are in this horrible kind of grey area of, they can’t pump up prices enough to support their own economies,” Critchlow continued.  “They do need to bring more oil back on the market, they need the market to respond. And with these prices, it’s just not going to cut it. It’s a bleak picture.”

‘A real test’ for OPEC’s strategy

Ehsan Khoman, head of MENA research at Dubai-based MUFG, described a similar dilemma for the group.

With oil prices shifting to what MUFG sees as cyclical tightening, “current spot prices are at levels that could prove self-defeating to the market rebalancing, which in conjunction with the large inventory overhang, creates a real test for OPEC’s current strategy,” Khoman told CNBC.

“Whilst large cuts are needed to normalize excess inventories, the longer OPEC+ keeps its unprecedented barrels off the table, the more it incentivizes higher cost U.S. shale producers.”

That being said, current oil prices are still far from ideal for shale, which is being barraged with a wave of bankruptcies as firms go under and rigs get taken offline. For shale’s many highly indebted producers, $40 oil is not enough to manage those debts.

It’s also important to remember that there is much more downside risk to OPEC’s 2021 demand forecast of 97.7 million bpd than upside. The projection is predicated on everything going right — the virus being contained, stimulus measures continuing, no disruptive trade wars.

Paola Rodriguez-Masiu, a senior oil markets analyst at Rystad, wrote Wednesday: “For now, we believe that the oil market is heading to the right direction, with oil prices registering moderate gains.”

But, she cautioned, “the price recovery is fragile and hinges not only upon avoiding a derailing of the demand recovery, but also OPEC+ adherence to quotas as they slowly ramp-up output in August.”

Tuesday, July 14, 2020

Extending Production Cuts Would Be ‘Suicidal’ For OPEC

OPEC+ will hold a committee meeting this week to assess the status of the oil market and decide on its next steps. For now, the group appears ready to begin unwinding the extraordinary production cuts, which could test the recent price rally. The historic cuts of 9.7 million barrels per day (mb/d) that OPEC+ implemented after the pandemic-related crash was always intended to be temporary. Initially, the cuts were set to expire at the end of June and begin tapering at the start of July; the group agreed to extend that first phase by a month.

As of now, the cuts are slated to expire at the end of July, reducing the cuts from 9.7 mb/d to 7.7 mb/d. Various press reports have suggested that the group is ready to let those cuts taper as scheduled, rather than push for another extension. 

Russia intends to rachet up production in August, and OPEC+ delegates are “leaning towards” relaxing the cuts, according to a report from Bloomberg. The Wall Street Journal reported a similar angle, adding that OPEC+ producers are reluctant to continue to shoulder the burden of propping up prices while non-OPEC producers around the world bring their own production back online. “If OPEC clings to restraining production to keep up prices, I think it’s suicidal,” a source familiar with Saudi strategy told the WSJ. “There’s going to be a scramble for market share, and the trick is how the low-cost producers assert themselves without crashing the oil price.”

Keeping 9.7 mb/d off of the market helped engineer a price rally to $40 per barrel and create an atmosphere of stability. The big question now is how the market will react to an easing of those cuts. “It has been all but a bumpy ride for oil during the last months and the OPEC+ deal on supply has been a pillar for the market,” Louise Dickson, oil market analyst at Rystad Energy, said in a statement. “The upcoming OPEC+ meeting this week is now expected, as planned, to make this pillar a bit weaker.”

Dickson added that it is “not necessarily a bad thing” for OPEC+ to increase production since “supply would have to grow as demand recovers.” Demand has sharply rebounded, although remains below pre-pandemic levels. 

The problem is that it remains incredibly difficult to calibrate supply additions to match the trajectory of demand recovery. The delicate balancing act is even trickier because demand may slow again due to the spread of the coronavirus. “[W]hat OPEC+ may have not accurately forecasted is the speed of the recovery, thus a premature partial lift of oil production restrictions can have a depressing effect for prices,” Dickson concluded. 

Other analysts are less concerned about OPEC+ bringing supply back. “Our balances show hefty deficits in the third and fourth quarters, even with a tapering,” Bob McNally, founder of consultant Rapidan Energy Group, told Bloomberg. “I think the market will handle it pretty well.”
If demand continues to increase, the “call on OPEC” will “surge massively” in the second half of the year, Commerzbank said in a note on Monday. “The oil market is thus heading for a clear supply deficit, which is why OPEC+ is likely on Wednesday to decide to gradually withdraw the record-high production cuts by 2 million barrels per day – as planned – from August,” the investment bank said. 

Meanwhile, the news from Libya is murky. The National Oil Corp. recently lifted force majeure on oil exports and said that it would begin to add supply back onto the market. However, over the weekend, the Libyan National Army said that the blockade would continue. In response, the NOC once again declared force majeure on Sunday, accusing the UAE of backing the blockade. The return of Libyan oil, should it occur, will likely be gradual. As such, it may not add too much to global supply. 

Another source of additional supply – U.S. shale – may not be as large as feared. In the past, any tightening up of the oil market simply created more room for aggressive shale drilling. But the rig count remains at historic lows, despite the increase in crude prices back to $40, and financial stress could keep drilling subdued. As steep decline rates take hold, it appears unlikely that U.S. production will come back in any significant way this year or next. 

This creates more room for OPEC+ to unwind their cuts, although the coronavirus remains an enormous uncertainty. 

By Nick Cunningham of

Monday, July 13, 2020

China Unlikely To Meet Phase One Demand For U.S. Oil, Gas

Dell and HP to shift up to 30 per cent of production out of China  - report 

It looks like China will not meet its Phase One trade deal promise to import more U.S. fuel products, including LNG, market watchers are now saying. Maybe that analysis is too easy to make at this point.

China has as good excuse as any: the economy is climbing out of a pandemic sized hole, and demand is not what it was a year ago. The question is, will that excuse be good enough for the U.S. to keep Phase One in tact? Given that this is an election year, blowing up what President Trump once called a “great deal” may not be politically prudent. For now, China is not going to deliver on its promises and its excuse is reasonable enough.

China said it would spend around $26 billion on U.S. oil and gas purchases this year.

In Washington, Republican lawmakers and U.S. trade groups have been lobbying the White House to prioritize oil, gas and its derivatives in trade negotiations with numerous countries, with China being a prime target. They all want China — the emerging market’s biggest oil and gas importer — to increase its purchases of things like liquefied petroleum gas and liquefied natural gas, especially. It’s the only way U.S. natural gas is going to get into China. China can get these things cheaper from Russia, just across the border, via pipelines.

China’s economy is in recovery mode, so one would expect more demand for oil and gas. That doesn’t seem to be translating into more demand for the U.S. product. China has a lot in storage to burn through.

Crude oil prices fell over $1.30 during the day on Thursday and are back under $40.
With or Without China, The Oil Glut Continues

This week’s Energy Information Administration inventory report showed a continuous build-up in crude oil sitting in storage tanks. Gasoline demand is picking up, so a drawdown in inventories in the U.S., where oil was being stored on tanker ships offshore because there was no room, for the most part, at on shore storage facilities, will lead to a better outlook for oil prices. A lot is riding on the pandemic winding down.

Oil’s direction is also an important indicator not only for energy stocks, but for commodity exporters like Brazil and Russia. Weak commodities tends to mean a strong dollar and a strong dollar is almost always negative for investor sentiment in emerging markets.

On Tuesday, the EIA released their Short Term Energy Outlook (STEO) report for oil and the July STEO remains subject to heightened levels of uncertainty due to the pandemic. Reduced economic activity has caused changes in energy supply and demand patterns all year; China is no exception.

Uncertainties persist across all energy sources, including liquid fuels, natural gas, electricity, coal, and even renewables.

Last month, OPEC+ announced that the world’s oil producers would all extend through July their period of cutbacks that was set to expire on July 1. It is unclear if Russia will continue along this path once the month is up.

Nevertheless, EIA expects monthly spot prices to average $41 during the second half of 2020 and rise to an average of $50 in 2021. That’d be for Brent crude.

Meanwhile, China not holding up to its end of the trade deal, regardless of pandemic woes, adds to the geopolitical overhang. China stocks are on a tear, anyway, likely thanks to government backing from the People’s Bank of China, the casino-like atmosphere of China’s A-shares among retail investors there, and foreign investors starting to move overweight China on two factors: they are coming out of the coronavirus slump, and the prospect of a Joe Biden presidency. Biden is seen as ending the trade war with China.

For now…the stimulus theme in markets trumps trade wars and trade deals. Stimulus is what’s keeping markets alive right now.

“It is difficult to maintain a ‘bull market case’ that doesn’t involve additional trillions in government spending,” says Marc Odo, client portfolio manager at Swan Global Investments.