Markets

Gulf turmoil, Trump agenda set to rattle energy and steel markets

This year has been restive, politically and diplomatically.

Tensions are at extraordinary levels in the Middle East, and the political face of Europe is transforming. With those changes have come more calls for protectionism that were already building in 2016. 

The scope and speed of change on domestic and international fronts have the potential to change the commodities’ landscape. But despite the turmoil, impacts on markets so far seem to have been remarkably brief, returning to normal mostly within days. 

 

OIL

The global oil market has shed some of its surplus, but stocks remain high as rising global production weighs on prices, which are currently exposed to two opposing forces. 

A fresh round of geopolitical instability in the Middle East — with Saudi Arabia, the United Arab Emirates (UAE), Bahrain and Egypt severing all diplomatic ties with Qatar — is raising questions on security of supply, concerns that are generally supportive of higher prices.

But a relentless rise in oil production in the U.S., Nigeria and Libya is weighing on the market. Rising U.S. rig counts suggest U.S. oil production could rise still further. Our PIRA colleagues predict the U.S. will quadruple its crude exports to exceed those of most OPEC members within three years. By 2020, exports of U.S. crude would hit 2.25 million barrels a day. 

US Rig data

With the downward pressure on oil prices prevailing, despite OPEC’s decision in May to extend production cuts, some market watchers wonder if Saudi Arabia and OPEC might need to make bigger cuts to speed a drop in global stocks.

OPEC production

Meanwhile, demand is growing strongly, reflecting global economic growth. PIRA forecasts demand growth rising by 1.8 million barrels a day in 2017 and a further 1.7 million barrels a day next year. But surplus stocks suggest Brent crude oil prices may stay around $50-$55 for longer. 

LNG

Ample supply continues to characterize the global market in liquefied natural gas (LNG). Qatar is the world’s largest LNG exporter and current uncertainties over its LNG shipping because of the diplomatic spat could present opportunities for other LNG exporters. So far, the Gulf Cooperation Council-led sanctions on Qatar have had little price impact. 

After announcing in April it was lifting a 12-year-old moratorium on new gas developments of the North Field, Qatar said recently it would boost production capacity by 30 percent to 100 million mt/year — equivalent to just under 40 percent of global demand in 2016.

Qatar LNG

The U.S. is set to become the third-largest global LNG exporter behind Qatar and Australia. Cheniere sees 50 percent of its LNG exports to Europe. Additionally, the EU and Japan have agreed to push for reliable LNG spot price indices as part of joint efforts to make LNG markets more transparent.

STEEL

In metals, the U.S. 232 investigation on whether metals imports threaten national security could have major implications for the global market. If it goes forward, it not only will further disrupt trade flows, but could have a knock-on effect with other countries implementing similar measures.

U.S. steel buyers are worried about possible tariffs and import quotas, and it is already impacting trade flows. 

RENEWABLES

In renewables, President Donald TrumpDonald TrumpMounting nationwide immigration enforcement costs Gulf turmoil, Trump agenda set to rattle energy and steel markets OJ Simpson knocks Trump out of the cable news spotlight MORE formally announced the U.S. would pull out of the Paris Agreement. While causing a global stir, other signatory nations and major businesses have vowed to plough on. In the U.S. itself, cities and states are pursuing their green objectives as costs tumble and the move to a global low-carbon economy gathers momentum.

A vital piece of the jigsaw is development of efficient and large-scale battery storage to fill the gaps in supply caused by the intermittent nature of renewables such as wind and solar. But this is a major focus of attention and developing rapidly. 

Added to this, vehicle manufacturers have all taken on board the development of electric or at least hybrid cars and trucks — an area which is expected to grow strongly. Trump’s decision on Paris is indicative of his energy and environmental policies, with a number of key U.S. decisions ahead.

ELECTRICITY

The Department of Energy initiated a study of the power grid focusing sources of baseload power. This study could reinforce the sun-setting of federal tax credits for renewables and potentially lend more support for coal and nuclear generation at the expense of gas.

Secondly, the U.S. International Trade Commission has taken on a case of a domestic solar panel manufacturer requesting a minimum floor price for imported solar PV panels — with potentially significant implications for the competitiveness of U.S. solar.

The administration is in the midst of finalizing greenhouse gas vehicle efficiency targets for model years 2022-2025 period. The possibility of extending/delaying the compliance target deadlines is being explored.

The administration has also advanced two candidates with pro-pipeline and pro-nuclear leanings to re-establish the decisionmaking quorum at the Federal Energy Regulatory Commissions. Industry awaits more information on infrastructure initiatives.

Martin Fraenkel is president of S&P Global Platts, a division of S&P Global and the leading independent provider of information and benchmark prices for the commodities and energy markets.


The views expressed by contributors are their own and not the views of The Hill. 

Leave a Reply

Your email address will not be published.

one × 1 =