As President Trump’s term comes to an end, the administration continues to tighten restrictions on Chinese companies as the U.S. Department of Commerce blacklisted CNOOC (China National Offshore Oil Corporation) on Thursday. CNOOC was blacklisted for helping China intimidate neighbors in the South China Sea which threatened U.S. national security. The Department of Commerce stated, “CNOOC has repeatedly harassed and threatened offshore oil and gas exploration and extraction in the South China Sea, with the goal of driving up the political risk for interested foreign partners, including Vietnam.” The Commerce Secretary Wilbur Ross also said, “CNOOC acts as a bully for the People’s Liberation Army to intimidate China’s neighbors, and the Chinese military continues to benefit from government civil-military fusion policies for malign purposes”. The South China Sea has been a lasting point of contention due to the oil contained in that area.
During the last quarter of 2020, everyone can agree that economically, we have seen better days. Especially in the energy industry, spending cuts, revised budgets, and slashed investments have played an impact. However, we are starting to see hope for offshore drilling stated by Rystad Energy, a global oil and gas analytics firm. Their analysts anticipate a 40% growth in Floatable Production Storage and Offloading facilities (FPSOs). China has taken an interest in FPSO’s and prepared its shipyards for an increase in new orders.
Earlier this month both China and Russia reported that they have developed a Covid-19 vaccine that has been clouded by doubt throughout the world since Phase III testing had not been performed. The vaccines have been developed by CanSino Biologic from China and the Gamaleya Institute in Moscow and are a modification of adenovirus type 5 (AD5). AD5 is currently being used to treat the common cold, and scientists and researchers are now concerned with the effectiveness of the vaccine.
United States and Chinese trade relations appear to have hit a new low after White House trade adviser Peter Navarro said that the trade deal was “over” on Fox News last night. Navarro later walked back his comments and said that his comments were taken out of context and, “was simply speaking to the lack of trust we now have of the Chinese Communist Party after they lied about the origins of the China virus and foisted a pandemic upon the world.”
As we near the end of May, we will put behind us one of the most bullish rallies for the WTI crude oil contract in history with crude jumping almost 75% this month alone. Of course, with WTI prices currently trading at $33.33/barrel, that’s not saying much, as it is widely perceived the breakeven price for domestic crude producers is $32/barrel. The question is: will this rally persist? Let’s review some components to watch out for this summer.