While everyone is waiting for OPEC’s big meeting next week and the IEA is trying to strong-arm the cartel into making bigger cuts to help out a “very fragile” economy in the midst of weaker demand growth, the real elephant in the room is the US-China trade war, the real mover of oil prices today. As we noted earlier this month, if Trump were to make any move on Hong Kong, it would send oil prices down because this would anger China and signal that no deal is really on the table. Trump did just that early on Wednesday, and oil prices responded immediately, falling for two straight days on the president’s signing into law of a bill backing Hong Kong protesters. In the meantime, Iraq is burning, with the torching of the Iranian consulate and nearly 50 people shot dead on Thursday alone; Iran is in upheaval over gas price hikes; and the GNA just tried to one-up Haftar on the Libyan oil patch - and lost.
Haftar Lost Oil Ground in Libya, But Only for A Day
Production was disrupted at Libya’s El Feel oilfield this week, and for 24 hours, the Libyan Government of National Accord (GNA) had its audience thinking that for the first time in this conflict, it had managed to take control of a major oilfield from General Khalifa Haftar, the head of the Libyan National Army (LNA) who has been trying to take over Tripoli.
Early on Wednesday, GNA forces announced they had taken control of El Feel, which produces 70,000 bpd, in a military operation, confirmed by the National Oil Company (NOC), whose oilfield staff are stuck in the compound between both sides and shuttering oil production until the fighting is over. Later that same day, General Haftar’s LNA launched airstrikes on the perimeter of the oilfield and retook control. Related: How To Invest In An Oil Contango
But for a few hours, the world thought that this was going to be a major turning point in the conflict, because Haftar largely controls all the oil, while the GNA controls Tripoli. Were the GNA to gain control over oil, it would likely signal the beginning of the end for Haftar. Control of El Feel is vital because it is next to Libya’s largest oilfield, Sharara, which would likely have been the GNA’s next stop had it been successful at El Feel. Instead, Haftar has not only maintained the upper hand, but this will contribute further to the perceived weakness of the GNA as its attempt to overtake the oilfield failed.
Production at El Feel had resumed as of Thursday, under Haftar’s control.
Shell Dealt Blow on European Renewables Scene
Mitsubishi has beat out big oil titan Shell to buy the Netherlands’ largest utility company, Eneco. Mitsubishi will buy Eneco for $4.5 billion as part of a consortium with fellow Japanese company, Chubu, which will hold a 20% stake, with Mitsubishi holding the remaining 80%.
The deal isn’t finalized yet, still requiring shareholder approval. If approved, Mitsubishi will use Eneco to be the hub for all its energy-related activities in Europe. To this end, it has plans to transfer all its European offshore wind assets - an extensive portfolio - to Eneco.
Eneco, which generates about half its electricity from renewable sources, is a major player in both offshore and onshore wind, with assets in the Netherlands, Belgium, and Germany. It operates 2GW of wind capacity and 300MW of solar capacity.
For Shell, the loss is a blow, but the oil giant will continue to search for tasty renewable energy assets, with plans to spend between $2 and $3 billion per year on renewable energy projects starting in 2021. The interest in Eneco was strategic for Shell - not only were the optics of the renewable deal attractive, but Eneco’s direct sell to consumers business model would have allowed Shell to hedge against the drop in demand for gasoline and diesel as Europe pushes into the EV business. Shell has had its eye on Eneco since it was first announced that Eneco would go up for sale in December last year.
It’s a blow for Shell because the European supergiants are facing unprofitability if they don’t get in on a big piece of the renewables pie, soon. The same level of pressure is not weighing down other giant oil companies outside of Europe.
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By Josh Owens of Oilprice.com
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Current events in Iraq and Libya would have mattered in normal circumstances if not for the growing glut that hasn’t only undermined OPEC+ production cuts and nullified the impact of geopolitics on oil prices but it has also absorbed Saudi production loss.
The recent US legislation supporting the demonstrators in Hong Kong is not only an affront to China and a blatant interference in its internal affairs but also a crude ploy by President Trump to shift media focus away from his impeachment proceedings . This will harden China’s attitude towards ending the trade war.
Having already won the war, China will be very disinclined to help end it because it has lost all confidence in President Trump’s word and his mercurial behaviour. China’s calculations are that the adverse impact of the war on the US economy coupled with the impeachment proceedings could cost President Trump the 2020 presidential elections.
And yet, the underlying fundamentals of the global oil market are still positive as evidenced by China’s soaring crude oil imports projected to hit almost 11 mbd this year. This matters because China accounts for 85% of global oil demand growth.
Still, all is not lost. President Trump may still swallow his pride and end the trade war if only to improve his chances of getting 4 more years in the White House.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London