Friday, November 8th, 2024
The US presidential election has dominated global newsfeeds this week, triggering widespread speculation on how a new Trump administration would implement its election promises in the first weeks and months of its tenure. Meanwhile, Hurricane Rafael, potentially the last hurricane of this Atlantic season, has temporarily shut down some 400,000 b/d of production but its weakening outlook will most probably spare the 4 million b/d of oil output that is still in its way. Oil prices remain rangebound, with ICE Brent trading around the $75 per barrel mark in recent sessions.
Hurricane Rafael Forces Gulf Platform Evacuations. Ahead of Hurricane Rafael passing through the US Gulf of Mexico, offshore operators evacuated 17 producing platforms as the 17th named storm of this hurricane season threatens some 4 million b/d of production capacity, even if gradually weakening.
Iraq Proposes New Kurdistan Deal. Iraq’s federal government reached out to the semi-autonomous Kurdish authorities with the proposal of doubling the amount it pays for the KRG’s oil production to $16 per barrel, however further talks are expected as this is still $10 per barrel less than what Erbil wants.
Iran Fears Worsening Gasoline Shortages. Iran’s new government has warned of an impending gasoline shortage despite an existing gas rationing system, as demand for the fuel reached 750,000 b/d lately and the domestic refining system can only churn out 670,000 b/d, requiring additional refining capacity.
Africa Mulls Refinery Expansions. Buoyed by the relative success of Nigeria’s Dangote refinery, Gabon announced its plans to build a 60,000 b/d refinery in Port Gentil, with the capacity of the plant exceeding the African country’s 46,000 b/d domestic demand and eyeing regional exports as well.
Germany Explores U-Turn on Nuclear Policy. In an almost complete reversal of Angela Merkel’s energy policy, Germany’s conservative parties CDU and CSU have called the country’s 2023 nuclear shutdown ‘ideologically wrong’ and advocate for a feasibility study into the reactivation of idled nuclear plants.
Europe Cools on Past Petrochemical Ambition. Polish state-controlled oil refiner Orlen (WSEKN) said it would not continue with its $13 billion Olefins petrochemical project in its current form, one of the largest in Europe, adding it would optimize, suspend or terminate the investment due to low profitability.
BP Divests Dutch Retail Network. The UK’s oil major BP (NYSE:BP) is preparing to sell all 310 of its petrol stations in the Netherlands, citing high maintenance costs of the system and limited growth potential, expecting to finalize the divestment towards the end of 2025 whilst keeping its Rotterdam refinery.
New EU Commission Eyes 2027 End to Russian Gas. The new Energy Commissioner of the European Union will seek to end Russian gas imports into the bloc ahead of the assumed 2027 target, albeit a non-binding one, as Europe is still getting 18% of its needs from Russia via the Ukraine transit route.
India Calls for More Term LNG Deals. India’s state-run gas firm Gail will add 5-6 mtpa of long-term LNG supply contracts to its portfolio by the end of this decade, taking its total import needs to 20-21 mtpa, as the Modi government set a mandate to increase the share of gas in generation from 6% to 15% by 2030.
Alaska’s Exploration Activity Dies Down. The Biden administration plans to offer the minimal possible acreage in a Congress-mandated oil and gas lease sale, offering only 400,000 acres, after delaying the auction for several years, with Alaska’s drillers now hoping for a Trump-era leasing revival.
Miners Want Trump to Speed Up Mining Permits. Mining giant Rio Tinto (NYSE:RIO) called on US president-elect Donald Trump to speed up the permitting process for new copper projects, referring to its Resolution copper mine which could supply a quarter of the US’ copper needs but remains stalled.
Tanzania Lures Investors with Huge Licensing Round. The African nation of Tanzania plans to offer 24 oil and gas exploration blocks in its 5th licensing round, to be launched next year, believing that it could entice oil majors to drill its offshore waters despite the relatively unfavorable Petroleum Act of 2015.
Trump’s Re-election Could Revive Keystone XL. President Trump’s return to power has brought the topic of reviving the stalled 830,000 b/d Keystone XL pipeline, intended to carry Canadian oil from Alberta, with operator TC Energy dropping its $15 billion claim against the US government.
This week:
So post election, post Fed, big bull week.
Some stuff earlier in the week:
Mine: CENX
Last week was incredibly busy at work which cut into my ability to post.
Obviously a big ‘news’ week with Trump getting re-elected. After the euphoria dies down or the wakes go home, the reality will be that there is nothing really that can be done to solve the crisis, unless of course the US are going to enter into true austerity and slash spending.
No.
It will be inflation. Lots of it.
As debt will need to rise.
There will be issues around this as the ‘Debt Ceiling’ makes a return in the new year and
the U.S. Treasury won’t be able to issue net new debt until Congress raises or suspends the ceiling again. They still have spending obligations, however, and are running structural deficits due to the policies that Congress has put into effect for decades.
And so as a result, the Treasury will begin to draw down their cash levels, since they’ll be paying out more in expenses each month than they receive in tax revenue and can’t issue net new bonds to fill that gap. The Treasury stores its cash balance at the Federal Reserve in what is known as the Treasury General Account. This cash is an asset for the Treasury and a liability for the Fed.
Lately, the Treasury’s policy has been to hold about $700 billion to $850 billion worth of cash in its TGA. And they have certain legal constraints on them to prevent them from gaming the system too much to get around debt ceiling suspensions. And right now, they’re at their target level:
If the Treasury runs out of cash without a new debt ceiling authorization, then it will have to default on something. Social security checks, Medicare payments, Defense payments, or temporary default on Treasuries can be in the cards since those make up the bulk of spending, and so Congress historically acts to prevent that level from being reached during the 11th hour.
But here’s the unintuitive thing. During the multi-month period where the Treasury is drawing down its cash levels to keep paying its bills, that can actually be stimulating for financial markets. It’s a net-plus for liquidity in the financial system while it’s happening as long as it doesn’t hit zero. It’s like a game of inverse BlackJack.
We can think of the TGA balance as cash sitting in an unused void. It represents money that has been pulled in from taxes and bond issuance, but not yet spent. And so when it is drained down, this cash is coming back out of that void and back into the financial system. During a drawdown, the Treasury is spending more money into the system than they are removing from it with taxes and bond issuance, and this money winds up back in aggregate bank reserves. A drawdown of the TGA is actually quite similar to the Fed doing quantitative easing, in that sense.
Obviously this has already been successfully implemented by Yellen so not a ‘new’ strategy. But clearly it has its limits.
Now liquidity has poured in from somewhere the $MOVE is down sharply.
USD is still elevated, but has stopped rising.
10yr UST down sharply (from the added liquidity)
This has, for the moment, averted any issues in the stock market. Let’s see if they can hold everything down. I’m suspecting Yellen.
jog on
duc
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#November #DDD