If not for the trade war, both oil and gasoline prices could be much higher than they are now on rising tensions between the U.S. and Iran.
Analysts say oil could be more than 10% higher, but if there is a resolution of trade issues, and the situation in the Middle East intensifies, there are risks of price spikes that take oil to as high as $100 a barrel this summer.
“If you do get a trade war resolution, a better economy coupled with Iran sanctions, that’s a recipe for higher oil,” said Francisco Blanch, head of global commodities and derivatives at Bank of America Merrill Lynch. Blanch said under that scenario, one incident could trigger a spike in Brent, the international benchmark, to $100 a barrel.
“I think the real risk is Iran misreads [President Donald] Trump and Trump misreads Iran. I do think the real risks are increasing for sure,” said Blanch. His forecast is for Brent to reach $82 per barrel during the summer.
West Texas Intermediate futures are flat this week at just around $62 per barrel and down 2.2% for the month so far, even though the U.S. has sent an aircraft carrier and bombers to the Gulf due to unspecified threats, which U.S. officials say are the work of Iran.
The U.S. Wednesday ordered all non-emergency diplomatic staff to leave Iraq, after two separate attacks in the region and as the U.S. responds to other nonspecific threats. This week, two Saudi tankers were among four ships attacked off the coast of the United Arab Emirates, and Houthi rebels, who have ties to Iran, claimed responsibility for a separate drone attack on a key Saudi Arabian pipeline.
While its not clear Iran was involved, analysts expect more such incidents.
“Senior Iranian officials have made veiled and not-so-veiled threats to obstruct the ability of its regional rivals to export oil and exponentially raise the economic costs of remaining on the current policy course. They have also warned of ‘planned accidents’ which could lead to direct confrontation,” notes Helima Croft, global head of commodities strategy at RBC.
The Houthi, operating from Yemen, have previously attempted attacks on Saudi oil infrastructure. Saudi Arabia and Iran are engaged in a proxy war in Yemen. Iran also provides funding for Hezbollah, a Lebanon based group designated as terrorists by the U.S.
The Saudi Aramco oil pipeline was temporarily closed after the drone incident. It is a 1,200 mile oil artery the Saudis built to bypass the Straits of Hormuz during the Iran-Iraq war.
Croft said the presence of the U.S. Fifth Fleet in Bahrain would likely discourage Iran from trying to close the Straits of Hormuz, though it could could use its proxies and stage one-off attacks on ships.
“It is important to note that these are not the only flash points in the region, and while an off-ramp may yet emerge, the hawks appear in ascendancy, which leaves oil’s risk premium set to take center stage,” she noted.
Croft said while the Trump administration has not blamed Iran in the attacks this week, they are “under a very heavy cloud of suspicion and there is growing concern that the region’s long simmering cold war may be poised to become a hot one.”
John Kilduff of Again Capital, said that scenario is one side of the tug of war on oil prices.
“The battle in the oil market is the geopolitical premium versus the slowing global economy, which is the fallout from the trade war,” said John Kilduff of Again Capital “WTI would be pressing $70, and Brent would probably push on $80 to $85.” Brent futures were just under $72 per barrel.
But those prices have not moved much higher in last few weeks, even as it became clear the U.S. would play hardball with Iran and pressure its oil sales to zero. It’s been a year since the U.S. dropped out of the agreement between Iran and six nations, which prohibited Iran from working on its nuclear program in exchange for a lifting of sanctions. The U.S. is the only nation to break from the agreement.
Iran has threatened to restart elements of its nuclear program, unless the European signatories of the accord help allow it to make oil sales.
“Historically, with this kind of tension in the Gulf, there would definitely be a security premium in the price. We haven’t seen it this time—so far,” said Daniel Yergin, vice chairman of IHS Markit. “The two big reasons are the trade war, and its potential effect on economic activity and the huge growth in U.S. supply.”
Yergin said U.S. Secretary of State Mike Pompeo has made it clear when speaking to oil industry leaders that the boom in U.S. oil production has helped give the U.S. flexibility.
“This is a case study of how the growth in shale, and the change in the U.S. position affects perceptions about security,” said Yergin. In the past year, the U.S. has surged past Russia to be the world’s largest oil producer. Last week, U.S. production was at 12.1 million barrels a day, while exports surged to 3.3 million barrels a day.
“You have this firewall of U.S. output,” said Kilduff. “The Saudis can really turn the spigot on at will. There’s a lot of cushion as we go into this situation with Iran.” Saudi Arabia and OPEC, have been attempting to keep the oil market in balance under an agreement with Russia and other non-OPEC producers. The joint monitoring committee for that group meets this week.
“There was chatter in the market that this weekend, they could agree to raise the production cap to respond to the loss of Iranian crude,” he said. Analyst said Iran exports have already fallen below 1 million barrels a day and it could drop more, to as little as 200,000 barrels a day.
Analysts say the potential for more incidents in the Gulf is increasing, as Iran gets more desperate and its economy gets weaker under U.S. sanctions.
President Donald Trump this week denied reports that the U.S. was considering sending as many 120,000 troops to the Middle East to deal with Iran. But he added if troops were necessary, he’d send “a hell of a lot more.” Trump’s advisers, however, are seen as more hawkish than the president, and it was his national security adviser John Bolton who advised President George W. Bush in the war against Iraq.
“It’s a flammable situation and with lots of room for miscues and miscalculations,” said Yergin.
Blanch said Iran has several options, including dropping out of the nuclear agreement, but the most likely is indirect actions through proxies.
“There’s no sense they’re going to come back to the negotiating table,” said Blanch. “Iran could see being more proactive against U.S. aggression, for the home audience. At the end of the day, the loss of market share for Iran is a gain forthe rest of the region. Other than letting others pocket money for the barrels you no longer can sell, you could target those barrels and maybe in the process push the price up and put some pressure on the Trump administration which doesn’t want to see higher gasoline prices. It’s a fine line to walk.”
“Because of the maximum pressure campaign the U.S. is putting on Iran, there’s little doubt the Iranians will try to act out through proxies in the areas. We’re tripping into conflict. That’s the sense in the market,” said Kilduff.
Apple’s earnings would drop by nearly 30% if China bans its products
Tim Cook, Apple CEO
John Chiala | CNBC
The U.S.-China trade war could take a big chunk out of Apple‘s bottom line if China retaliates by banning its products, according to an analyst at Goldman Sachs.
Analyst Rod Hall said in a note to clients that Apple’s earnings could drop by 29% if the company’s products were banned in mainland China.
Apple’s China business accounted for more than 17% of its sales in its fiscal second quarter, coming in at $10.22 billion. The company also sells billions of dollar worth in iPhones every year in China.
“Should China restrict iPhone production in any way we do not believe the company would be able to shift much iPhone volume outside of China on short notice,” Hall said. “We believe that Apple is near its annual rapid ramp of new iPhone production to prepare for new device launches in the Fall so even a short term action affecting production could have longer term consequences for the company.”
Hall also noted that China’s “tech ecosystem” and local employment could take a hit if Apple products are banned. Most of Apple’s supply chain rests in mainland China, including the iPhone’s final assembly, which is executed at Foxconn.
Apple shares are down 7% for the month through Tuesday’s close as China and the U.S. ratchet up trade fears. The U.S. hiked tariffs on $200 billions worth of Chinese goods earlier in May. China retaliated by raising levies on $60 billion worth of U.S. imports.
Hall is not the only analyst raising concern over Apple’s exposure to China. On Monday, HSBC analyst Erwan Rambourg cut his price target on the tech giant to $174 per share from $180. Meanwhile, Credit Suisse analyst Matthew Cabral said Tuesday that Apple’s earnings per share would fall by about 15 cents a share for every 5% drop in Greater China sales.
England will ban plastic stirrers, straws and cotton swabs from 2020
saulgranda | Moment | Getty Images
A ban on plastic drinks stirrers, straws, and plastic-stemmed cotton swabs will come into force in England next April.
“Urgent and decisive action is needed to tackle plastic pollution and protect our environment,” Environment Secretary Michael Gove said in a statement Wednesday.
“These items are often used for just a few minutes but take hundreds of years to break down, ending up in our seas and oceans and harming precious marine life,” he added.
The ban follows on from a consultation which found that more than 80% of respondents supported a ban on the distribution and sale of plastic straws, with 90% backing a ban on drinks stirrers and 89% in favor of a ban on cotton swabs. The consultation ran from October 22, 2018 to December 3, 2018, and had 1,602 respondents.
Outlining details of the ban, the U.K. government said there would be exemptions to make sure that people with a disability or medical requirements could continue using plastic straws.
In practice, this means that while restaurants and bars will not be allowed to display plastic straws or “automatically hand them out” they will be able to provide them upon request.
Another exemption will apply to the use of plastic-stemmed cotton swabs for “medical and scientific purposes” where such items are “often the only practical option.”
The CEO of Surfers Against Sewage, Hugo Tagholm, said the charity welcomed the ban. “Stopping the production and distribution of these single-use plastic menaces will prevent them from polluting beaches nationwide,” he added. “It’s a really positive and bold step in the right direction in the battle against plastic pollution.”
Several major businesses are already looking to move away from using plastic in their stores. Fast food giant McDonald’s is rolling out paper straws to stores in the U.K. and Ireland, while upscale supermarket Waitrose now only offers paper straws in its cafes.
The issue of plastic pollution is a big problem. Europeans produce 25 million tons of plastic waste per year, according to the European Commission. Less than 30% of this is collected for recycling.
Twitter exchange with Elon Musk lands a British man a job at Tesla
Tesla has hired a British man behind a viral tweet that caught the attention of Elon Musk last month.
Adam Koszary, who engineered a viral Twitter exchange between Musk and an English museum, will begin a new role as Tesla’s social media manager in July.
Back in April, Koszary, the digital lead for the Museum of English Rural Life (MERL), tweeted a photo of a ram with the caption: “Look at this absolute unit.”
The picture has been liked more than 100,000 times to date – and its popularity really took off when Elon Musk used the image as his own profile picture on Twitter.
“I’m an absolute unit too,” he said in a tweet, temporarily changing his Twitter bio to “absolute unit.”
In response, the MERL switched its own picture for one of Elon Musk, sparking an ongoing exchange between the two accounts.
Koszary, who had been due to start a new job at the U.K.’s Royal Academy of Arts (RAA), announced on Twitter on Tuesday that he had instead accepted a role with Tesla.
“I’m no longer moving to the Royal Academy. Instead, I’ll be Tesla’s Social Media Manager from July,” he said.
Sob! We’re obviously very sad that the lovely and talented Adam now won’t be joining us, but know he’ll do a great job at Tesla (and Adam, please don’t forget to send over that RA-branded Model S we discussed). If *you* want his job, apply here -> https://t.co/9GH6lHJfzC
— Royal Academy (@royalacademy) May 21, 2019
The RAA said in a tweet on Tuesday that it was “very sad that the lovely and talented Adam now won’t be joining us, but know he’ll do a great job at Tesla.”
A spokesperson for Tesla was not immediately available for comment when contacted by CNBC.
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