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Yves here. With the impeachment spectacle eating the news, other important developments are going by the wayside. It is intriguing that oil traders have blown off the Houthi drone attack, but maybe this is just trader short-termism plus the success of the Saudis in making repairs quickly.
By Nick Cunningham, an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. Originally published at OilPrice
Oil prices fell again on Monday on waning hopes of a breakthrough in the U.S.-China trade war.
Late last week, Bloomberg reported that the Trump administration was considering more extreme measures aimed at China, including putting limits on American investments in China, de-listing some Chinese companies from American stock exchanges, as well as putting caps on the value of Chinese companies that managed index funds can hold in the U.S.
No decision has been made, but Bloomberg reported that President Trump gave the go-ahead to his advisers to explore some potential moves. Some China “hawks” have described the plans as a possible “financial decoupling” of the U.S. and Chinese economies.
In response to that press report, the Trump administration issued only a partial and qualified denial, according to Bloomberg. “The administration is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time,” Treasury spokeswoman Monica Crowley said to Bloomberg, without addressing some of the other ideas allegedly put forward.
But Trump’s top trade adviser Peter Navarro seemed to hint at the fact that the administration was considering precisely those moves, while simultaneously calling the reports “fake news.”
“There’s some significant issues related to Chinese stocks listed on public exchanges,” he said on CNBC. “There’s some interesting and significant transparency issues with Chinese stocks, but that’s all I’m going to say, I’m not going to talk about what’s going on behind closed doors.”
The precise policy under consideration is not the main point. Rather, turning to restrictions on investment flows and other punitive measures would amount to yet another escalation in the trade war. It would severely undercut whatever slim goodwill has been built in recent weeks between the two countries, and it would make a breakthrough in trade talks infinitely harder.
Of course, it’s possible that the Trump administration is considering these maneuvers as a fallback plan in the event that the trade talks – scheduled to restart on October 10 and 11 – run aground once again. It’s also possible that the administration is signaling its intent to escalate as a way of exerting leverage, pressuring Beijing to cut a deal by hinting that painful reprisals are on the drawing board if China does not give in.
Either way, the markets interpreted the report as very negative for crude oil as it suggested diminished odds of a trade breakthrough.
For its part, China warned on Monday against any sort of “decoupling” of the world’s two largest economies.
Meanwhile, Saudi crown prince Mohammed bin Salman gave an interview to CBS’ 60 Minutes over the weekend in which he said that a hot war would result in a spike in oil prices, which would drag down the entire global economy. He was adamant that the world needs to deter Iran, but he said that he prefers a political solution to the dispute rather than a military one.
“The remarks by MBS help to alleviate immediate concerns around escalations in the Middle East, leaving the market to revert its focus to the economy,” BNP Paribas global oil strategist Harry Tchilinguirian told the Reuters Global Oil Forum.
Saudi oil production rebounded to 9.9 million barrels per day (mb/d) last week, according to Aramco. “On the 25th, yes, we reached that target of production,” Ibrahim Al-Buainain, CEO of the state-owned Saudi company said. “We produce depending on the market and depending on capacity, so actually we are a little bit higher than this.”
The Abqaiq attack has been all but forgotten by oil traders. Instead, focus has shifted back to the U.S.-China trade war. “Speculative financial investors (further) reduced their net long positions in Brent and WTI in the last reporting week, thereby contributing to the slide in oil prices,” Commerzbank wrote in a note on Monday.