Crude Oil Market Focus on Saudi Arabia and Disappearance of Journalist

Posted on 10/15/2018 6:26 AM

U.S. pork producers have another trade concern: potential Mexican trucking issues

Crude oil markets are closely watching how the Trump administration deals with potential punitive measures against Saudi Arabia regarding the disappearance of a journalist.
     RIN market reform was included in a White House fact sheet released Friday regarding the proposed year-round sale of E15.
     The U.S. pork industry is closely watching the Mexican trucking industry as it could be impacted by the updated NAFTA (USMCA). The fear is that Mexico could continue its tariffs on U.S. pork products even when the Trump administration lifts metal tariffs on the country.
     Mnuchin: Trump-Xi trade summit is no done deal. Treasury Secretary Steven Mnuchin said he is pushing for a summit between President Trump and China's President Xi Jinping to address the trade tensions, but that no final decision has been made to hold the meeting.
     U.S. allies soften tone on U.S. trade policy. The IMF kicked off its annual gathering with a stern warning about protectionism, but it ended it with central bankers and finance ministers taking a much less dire and confrontational tone than U.S. trading partners had after previous international meetings.
     President Trump heads to Florida and Georgia today to survey the damage from Hurricane Michael, the Category 4 storm that leveled parts of the Florida Panhandle last week. At least 19 people are dead. That number is expected to climb as search and rescue efforts continue. The president and first lady Melania Trump fly this morning to Eglin Air Force Base in Florida’s Panhandle to review the state’s needs. From there, the Trumps will fly to Robins Air Force Base in Georgia, 18 miles southeast of Macon, to do the same in the Peach State in the afternoon.
     USDA Secretary Sonny Perdue Sunday took an aerial tour of the damage caused by the hurricane in Georgia and he met with farmers affected by the storm.
     California is falling behind... There’s a “hamster commissioner” in Austria. Friedrich Vondruska’s job is to protect wild common hamsters at a Vienna university. Link


Saudi Arabia threatened to retaliate against any punitive measures. The world’s largest oil exporter said it would hit back if President Trump follows through on punishing the kingdom over the disappearance of journalist Jamal Khashoggi, noting its “vital role in the global economy.” The Saudi government said that if economic sanctions or other forms of punishment were imposed on the kingdom, “it will respond with a larger action,” according to an official statement, which didn’t specifically mention the U.S. or any other country.

The comments came after President Trump pledged to impose “severe punishment” on Riyadh if an investigation implicates the kingdom in the case of Jamal Khashoggi, who disappeared after he entered the Saudi consulate in Istanbul on Oct. 2.

Trump said he opposed sanctions against the U.S. ally because it may hurt jobs in the U.S. tied to a $100 billion arms deal with the kingdom. But some U.S. lawmakers have been pressuring the Trump administration to rethink its close partnership with the Saudi leadership in light of Khashoggi’s suspected death.

Company execs cancel plans. The CEOs of JPMorgan, Uber, and Ford are among the business leaders who have cancelled plans to attend an investment conference in Riyadh in light of the tensions.

The Saudi Embassy in Washington tweeted: “To help clarify recently issued Saudi statement, the Kingdom of Saudi Arabia extends it appreciation to all, including the U.S. administration, for refraining from jumping to conclusions on the ongoing investigation.” The Saudi government has dispatched a team of officials to Ankara to take part in a joint working group to look into what happened to Khashoggi. Saudi Arabia will allow Turkish investigators to search consulate in Istanbul where journalist disappeared, Turkish officials said.

The U.S. has no ambassadors in Saudi Arabia or Turkey. In addition, Trump has yet to nominate candidates for ambassadorial posts in 20 nations, including Australia, Egypt, Ireland, Mexico, Pakistan, South Africa, Singapore and Sweden. At the same time, 46 ambassadorial nominees are still awaiting Senate confirmation.

Increasing transparency in the RIN market. In the same rulemaking regarding the push for year-round E15 sales, the Trump said it will increase transparency in the Renewable Identification Number (RIN) market. Details were contained in a White House fact sheet (link). EPA will consider reforms to increase transparency and prevent price manipulation in the RIN market. These potential reforms to be considered include:

  • Prohibiting entities other than obligated parties from purchasing separated RINs.
  • Requiring public disclosure when RIN holdings held by an individual actor exceed specified limits.
  • Limiting the length of time a non-obligated party can hold RINs.
  • Requiring the retirement of RINs for the purpose of compliance be made in real time.
  • President Trump and his administration held meetings with various stakeholders, including members of Congress and State leaders, to hear a range of views while evaluating this decision.
  • These proposals will go through the formal notice and public comment process.

RFA lobbyist: President Trump knows what he's doing on year-round E15. Geoff Cooper, president of the Renewable Fuels Association (RFA), wrote a letter to the editor for the Wall Street Journal. It says:

“Your editorial 'That’s What You Want to Hear' (Oct. 11) criticizing President Trump’s decision to allow year-round sales of E15 only proves the president knows far more about fuel regulation, value-added agriculture, consumer choice and savings at the pump than the Journal does.

“You’re wrong in suggesting E15 hasn’t been allowed in the summer because it creates smog. In fact, the EPA concludes E15 emits less ozone-forming hydrocarbons than gasoline — not more. E15 has been denied to consumers because of antiquated regulations that simply didn’t envision higher ethanol blends. The de facto summertime ban on E15 is a perfect poster child for the type of unnecessary regulations President Trump has endeavored to repeal.

“You also misunderstand the market for ethanol, gasoline and renewable identification numbers (RINs), credits used by refiners to comply with the Renewable Fuel Standard (RFS). Ethanol is far less expensive than gasoline today, so adding more of a higher-octane, lower-priced fuel benefits both consumers and gasoline marketers. Moreover, there is a record supply of surplus RINs available today, driven by the unprecedented number of RFS compliance waivers granted to profitable refiners by former EPA Administrator Scott Pruitt. Those waivers reduced RFS demand by 2.25 billion gallons, causing us to wonder why the Journal believes refiners needed to get something in exchange for the regulatory relief President Trump provided ethanol.

“Far from benefiting from a “potpourri of government distortions,” ethanol is a cost-effective, clean-burning, value-added fuel that is stimulating investment in rural America and reducing costs at the pump.”

Today's newspaper also includes comments from Chris Sobolewski, of Collegevilla, Pa., who wrote:

“I dare any politician who thinks ethanol-blended gas is a great idea to try to start a two-stroke engine which has been sitting all winter in a shed with old 10% ethanol-mix fuel. You will take the piece of equipment to the curb for the next trash pickup. The E15 mix is going to be an even bigger disaster.

“For the record, I got tired of buying gas-powered weed whackers and have switched to a battery-powered unit. Is the secret plan to reduce our dependence on fossil fuel to give us gas that breaks our lawn equipment?”

Mexican trucks could be impacted by updated NAFTA. The U.S. could stymie Mexican trucks providing long-haul trucking services beyond U.S. border commercial zones via annex language attached to the new USMCA (U.S.-Mexico-Canada) agreement. The annex says the U.S. “reserves the right” to limit “grants of authority for persons of Mexico to provide cross-border long-haul truck services” outside U.S. border commercial zones, if those limitations “are required to address material harm or the threat of material harm to U.S. suppliers, operators, or drivers.”

Under the provision, “material harm” means a significant loss in the share of the U.S. market for U.S.-owned long-haul truck companies “caused by or attributable to persons of Mexico.”

The provision was pushed by the International Brotherhood of Teamsters and the Owner-Operator Independent Drivers Association, which had worked for over 20 years to block NAFTA cross-border trucking provisions.

Other items of note:

  • China reports ASF on large hog farm. China has now reported African swine fever (ASF) has been found on a farm in northeast Liaoning province that has nearly 20,000 hogs, the largest facility where the disease has been found. The large farm location was not specified, but the announcement from the Chinese Ministry of Agriculture said it was in Jinzhou city. The country said ASF had also been found on two smaller farms in the province in Panjin city.

  • USDA to approve license for African swine fever virus. USDA’s Agriculture Research Service in today's Federal Register stated it intends to approve a license for Zoetis, Inc., to market its vaccine for the African swine fever virus. Comments must be received by Nov. 14, 2018. Link for details.

  • President Trump, seeking to counter China’s growing geopolitical influence, is embracing a major expansion of foreign aid that will bankroll infrastructure projects in Africa, Asia and the Americas. Link for details.

  • USDA on Friday issued $4.8 billion to producers through Agricultural Risk Coverage, Price Loss Coverage and the Conservation Reserve Program. USDA also announced $9.4 million in grants to help underserved and veteran farmers and ranchers with training and technical assistance.

  • Food, farm, environment and public health advocacy organizations today hold a press briefing to share their goals for the farm bill at this stage in the talks.

  • Reuters: Egypt said to be in talks with international banks on hedging commodities. Egypt has entered into talks with international banks with an eye on hedging their risks against rising commodity prices, according to Reuters. The talks are in initial stage, according to a government source. "We are not in advanced talks...we are surveying, taking presentations, not more than that," the source said, according to Reuters, adding that there was no deadline set for the completion of the talks. Several government units are working on the issue, with another source noting the effort was aimed at hedging against a rise in wheat prices. Egyptian officials have previously indicated they were contemplating a plan to hedge oil, but were waiting for market volatility to decline.

  • Trump administration tariffs meant to spur U.S. manufacturing job growth are having a more complicated impact at many American factories, the Wall Street Journal reports (link). Some U.S. manufacturers are reporting increased revenue as tariffs force customers to rethink supply chains. But the WSJ article notes that companies that have brought manufacturing back to the U.S. also say tariffs are raising their costs and making them less competitive. Some manufacturers say they’re looking outside China to source goods from sites like Vietnam and Thailand. Levies on steel and aluminum, meantime, are raising input costs for some manufacturers, leading some to delay expansion plans.

  • Is James Mattis next to leave Trump team? In a 60 Minutes interview, President Trump was asked whether his Pentagon chief, James Mattis, might be leaving the Pentagon soon. “I don't know. He hasn't told me that. ... I have a very good relationship with him. I had lunch with him two days ago. It could be that he is. I think he's sort of a Democrat, if you want to know the truth. But General Mattis is a good guy. We get along very well. He may leave.”

  • Sen. Elizabeth Warren (D-Mass.) has released a DNA test that provides “strong evidence” she had a Native American in her family tree dating back 6 to 10 generations," the Boston Globe reported. "Warren, whose claims to Native American blood have been mocked by President Trump and other Republicans, provided the test results to the Globe ... in an effort to defuse questions about her ancestry." She plans a big rollout today of the results. Link

Markets. U.S. equities last week saw big losses. The Dow ended down 4.2%, the S&P 500 fell 4.1%, and the Nasdaq Composite lost 3.7%.

Commerce Department today publishes September consumer spending data. American consumers reined in their spending in August, taking a breather after very strong sales growth in July. Still, the overall weakness in August was largely because of a drop in auto sales. Economists expect 0.7% growth.

An attention point this Wednesday will be the Federal Open Market Committee (FOMC) meeting minutes from the September 30-October 1 session. The post-meeting press conference has taken some of the focus off the recap, but it will still be watched for the debate within the Fed on the number of rate increases they expect in 2019 which was put at three based on their updated economic forecasts issued at the conclusion of the meeting.

Sears has filed for bankruptcy after years of staying afloat through financial maneuvering, a merger with Kmart and relying on billions of CEO Eddie Lampert's own money. It's set to shutter 142 stores towards the end of the year and begin liquidation sales shortly. While Lampert will step down as CEO, he'll remain Sears chairman, as his ESL Investments negotiates a debtor in possession loan and other funding to support what was once the country's biggest retailer through the bankruptcy process. Sears has lined up $1.875 billion in bankruptcy financing to pay off its existing loans and fund its stores during bankruptcy.

China’s central-bank governor, Yi Gang, said that the bank had “plenty of room for monetary adjustments” if the trade war with America proves long-lived and painful for China’s economy. He also said that he still believes the country will hit or even overshoot its target of 6.5% GDP growth in 2018. Markets have taken fright at the trade war. The central bank governor on Saturday promised to keep the yuan currency’s value "broadly stable" at IMF and World Bank annual meetings in Bali. But U.S. Treasury Secretary Steven Mnuchin reiterated concerns that a major drop in the yuan's value this year against the dollar could be part of an effort to gain a trade advantage for Chinese exports or to offset the impact of U.S. tariffs.

Washington wants to include a provision to deter currency manipulation in future trade deals, including with Japan, based on the currency chapter in its new deal to revamp NAFTA. The decision drew concerns in Japan over whether the U.S. would have the right to label any future forex market interventions by Tokyo as manipulation. The yen is often regarded as a "safe-haven" currency in Asia.


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