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Oil Rally Continues As Bulls Gain Confidence

The shakeup within Saudi Arabia’s…

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The Lesson Oil Markets Will Never Learn

Oil prices rallied nicely earlier this week on optimism surrounding US-China trade war talks, but lessons here are never learned by the market, which is continually roped in by vague tweets hinting at a break in the tariff tit-for-tat. By Friday morning, that rally had ended ignominiously - as everyone should have expected. The end of the week’s rally was heralded by a US supply decline, coupled with those eternal Middle East tensions, which seem to have existed since the beginning of time and which won’t be changed much by a high-profile yet realistically insignificant tanker back-and-forth in the high seas.

Despite Friday’s oil price decline, oil prices are up on the week, with Brent gaining $1 per barrel. The rig count data expected later in the day is expected to show yet another decline in the number of rigs, especially in the Permian – an increasingly meaningless metric as US production continues to climb despite the loss in rigs.

Gazprom Gets Short End of LNG Stick - Again

Rosneft, Exxon, SODECO, and ONGC Videsh - partners in the Sakhalin-1 oil and gas project in Russia - have decided to build their own LNG plant instead of selling the Sakhalin-1-derived oil to Gazprom as originally intended. Gazprom and the Sakhalin-1 group have been in talks regarding the project’s gas, but they have failed to come to any agreement regarding the price. Instead, the group will build its own LNG plant, capable of producing 6.2 million tonnes per year, which will be sold to Japan. Rosneft already has an export terminal for oil produced at Sakhalin-1.

The LNG project will be the fourth LNG project in Russia (after Gazprom’s Sakhalin-2, Novatek’s Yamal, as well as Novatek’s upcoming plant, Arctic LNG-2) that is slated to come online in 2023. This will give Exxon, which holds a 30% stake in the project, and Rosneft (20%), a chunk of Russia’s LNG market - at Gazprom’s expense.

Gazprom was intending to use the gas it would receive from Sakhalin-1 for the expansion of its existing Sakhalin-2 project. Gazprom has indicated in the past that there are not enough gas resources at Sakhalin-2 to fulfill its expansion plans. It is unclear how Gazprom will proceed.

The timing and cost for the Sakhalin-1 LNG plant have not yet been disclosed.

Lately, state-owned Gazprom has been losing out to others on the oil and gas playing field, and particularly to Novatek, which is the largest private producer of gas in Russia. Rosneft and Novatek have had limited supplies because Gazprom has a monopoly on pipeline exports. The trade-off came a couple of weeks ago when Gazprom was given permission to sell more gas at market rates. But make no mistake about it, this playing field is being leveled by Putin, who excels in balancing the forces of his closest oligarchs.

Tesla Takes China

It was only 8 months ago that Tesla started phase one construction on its China Gigafactory 3 site, and now word is that it’s nearing completion, with Chinese media circulating pictures of the building, complete with interior shots showing equipment in place. No one can independently confirm at this stage, but estimates are that the gigafactory will be completed ahead of schedule, following an aggressive plan. Completion of the south substation will be the last holdout prior to Gigafactory 3’s production launch, which some are saying could take place at the end of this month.

Musk has called the progress “mind blowing” and has stated that long-term demand for the Model 3 at Gigafactory 3 will be 5,000 vehicles per week.

Things have been going well for Musk in China. He visited with various government officials on his last trip there and returned with more than just souvenirs. To wit: he came away with a 10% tax break for Tesla cars, which will slash prices for buyers.

Other EV companies doing business in China also received tax breaks, including Daimler and Toyota. The tax break affects cars made in China as well as cars imported to China. This is highly significant because of the new 25% tariff levied on US goods making their way to China. It’s a way for Beijing to blunt the sharp edge of tariffs that represent a side war going on with the Trump administration.

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