Thread by @davidgaffen

FRIDAY MORNING IN ENERGY: And I’d like to talk energy, but really, I’ve got to talk trade first after we’ve got new tariffs coming, a lot of research notes, and very nervous markets… #OOTT #tradewar #China #trade

… as always you can follow our coverage here on Reuters.com. Our lead story right now is, the US escalated the trade war with more tariffs after the Chinese made major changes in the agreement that blew everything up earlier in the week.

reuters.com/article/us-usa…

Trump has said he’s in no rush to complete the deal. So we’ve got that going for us. #trade #china Ttradewar

reuters.com/article/us-usa…

Naturally there are an army of economists out there saying why this isn’t a big deal and not that much different from their base-case (translation: it is).

Right now BofA/Merrill says there are three scenarios:

1.A quick deal (C’mon, folks, you know better than this) #trade
2.A “brinksmanship” scenario, which is pretty much what we have now
3. An all-out trade war.

BofA long had that first one in mind: “Until the president's tariff threat the benign scenario was our baseline. Our reasoning was that the administration would avoid another round of tariffs because it understood the potential negative impact on the markets and the economy.”

The brinksmanship scenario looks more like it - and BofA says why without really knowing it. What's stated below in this GIF follows the Trump approach on both Iran/Venezuela sanctions and as we see, the trade war – they think they can gamble with the economy and oil markets.

The markets are holding somewhat, but things can change, and manufacturing is slowing. Other economists aren’t much better on this. Goldman says while the WH “is not that likely to implement the next round of tariffs (30% probability),” the risk has risen. You think so? #trade

James Lucier is a bit better at Capital Alpha – though he starts again with the “we remain optimistic” stuff. But his view is much more sanguine, as they never expected much.

What’s all this mean in the real world? Well, let’s look at #soybeans prices, shall we? That first chart looks pretty bad. But that's just the last few months. Here's the last 10 years. Yeah, we're at 2008 levels. @pjhuffstutter1 #farming #trade #agriculture

So…should we try to talk energy, if only a little? The #Occidental shareholder meeting is happening now – and so we’ll be getting feed from there, watch our tweets and our website on this one. #OOTT #shale

But we’ll see how much heat there is out of this from shareholders angry that Oxy’s Vicki #Hollub pulled out all the stops in a globe-trotting expedition to nail down financing for this deal and cut out a shareholder vote. #OOTT #shale
reuters.com/article/us-occ…

It’s a pretty crazy mix of things that happened and we’ve got a timeline on how it went down here – in addition to our big takeout on the shuttle diplomacy that ran yesterday as well via @JessicaRAult and @DevikaKrishnaK – a lot of great work here.
uk.reuters.com/article/uk-ana…

And so yeah, we’ll see how this pans out. The shale companies have been struggling in terms of investor returns, while majors come in, so the argument may have been, Oxy has to be a major.
reuters.com/article/us-ana…

#OOTT #Occidental #Anadarko

FWIW, some shareholders very, VERY unhappy. Oxy shares down again today, this time 2 percent. That’s a 10-year low. #OOTT #Occidental

Moving on a bit to some wonky refining stuff, this year was supposed to be a good one for the big US complex refiners with the new “IMO 2020” rules coming into play. #OOTT #IMO2020 #refining #shale
reuters.com/article/us-usa…

What are those rules? Basically, ships run this awful stuff that’s very high in sulfur and pretty sludgy to scoot around the world delivering lots of things.

Next year, they have to stop – they have to run lower-sulfur fuel due to what’s known as “IMO 2020” rules. For a lot of refiners, that means they’ll process sweeter, lighter crude (the US produces a ton of this).

imo.org/en/MediaCentre…

But big US refiners, especially in the Gulf, were designed to run a lot of heavy crude – which has a higher sulfur content. These folks can break down heavy crude into refined products. #OOTT #shale

Some of what they also use are cokers – that comes after initial distillation, and takes what's at tank bottoms down into further refined products like gasoils, naphtha, and eventually, petroleum coke. All that cuts more sulfur out of things.

eia.gov/todayinenergy/…

Sorry for the long explainer, and refining experts, if I got anything wrong, chime in – but the hope for these folks like Valero/Marathon was that demand for light crude (due to IMO 2020) would rise, heavier crude would cheapen, and they’d leverage that into big profits.

That plan has been…complicated. The combo of #OPEC output cuts, #Venezuela sanctions, Mexico’s slack production, and Canada’s clogged pipelines means heavy crude is scarcer - and now, pricier, as @stephaniekellyM and @devikakrishnak lay out in our story.

So the refineries are still running all this crude, but their hoped-for profits aren’t going to materialize, not yet, anyway. Marathon this week cancelled plans to invest in a new coker at its Garyville, La., refinery – for this exact reason. Ye gads.

nola.com/business/2015/…

Meanwhile, separately, Sinopec and CNPC have skipped purchases of Iran oil for May due to US sanctions. US walking a real tightrope here with Venezuela and Iran. So far, it's working. We shall see if it continues.

reuters.com/article/us-chi…

My colleague @JKempEnergy points out some of this looking at the Brent calendar spread - that is, the current futures contract and those over next several months. They point to worries about tighter supply, basically.

10 May - 11:58:26 AM [RTRS] - #MNUCHIN SAYS TRADE NEGOTIATORS ARE DONE FOR THE DAY IN CHINA TALKS

Meaning what? They're going home, right? Hello?