Markets were a bit uneasy this weekend, and one of the larger factors was the failed ballistic missile launch conducted by North Korea early Sunday morning. Although the launch failed almost immediately, the tension in the region has definitely escalated. VP Mike Pence, visiting South Korea, stated, “Just in the past two weeks, the world witnessed the strength and resolve of our new president in actions taken in Syria and Afghanistan. North Korea would do well not to test his resolve or strength in the armed forces of the Unites States in this region.”
China has reacted to North Koreas provocations starting in February. The Chinese cut off all imports of North Korean coal as of February 26th. Taking it one step further, Reuters reported that China has also stated that there is a possibility that it will begin to restrict oil shipments into North Korea if it “unleashed more provocations.” President Trump has said that he would be willing to “cut a better trade deal” given China is able to influence North Korea against further nuclear cravings. From the looks of it though, Kim Jong Un is not overly interested in any of this and has sent a message to Syrian President Bashar al-Assad stating, “I express a strong support and alliance to the Syrian government and its people for its work of justice, condemning the United States’ recent violent act against your country.”
Switching gears, the U.S. oil rig count rose again last week by another 11 rigs, bringing the total to 683. The U.S. natural gas rig count fell by three rigs to 162 in total. Preqin, a financial data provider, states that the first quarter of 2017 has boasted a rise in private equity funds to a whopping $19.8 billion for energy endeavors. This figure is reported to be three times that of last year’s private equity funds in the same time period. Has the big difference this year been the rise in oil prices? Is it because of newer pockets discovered in the Permian basin? How about rig efficiencies? That is likely the largest contributor to the recent spike in this activity. Over the past two years technology has allowed a barrel of oil to be pumped for half the price than years prior. This has made investors so bold as to say that even if the price per were to drop by $10 a barrel they would not be dissuaded from pushing forward. This rush is leading to the highest level of rig additions in six years and crude stockpiles are at nearly their highest levels ever, at close to 533 million barrels.
The EIA has just reported that the U.S. has reached a crude production level of 9.24 million barrels per day, which has put us at the third largest oil producer in the world behind the Russians and Saudis. This increased production, although a threat to OPEC, almost appears warranted though, given China just recently posted economic growth of 6.9% and does not appear to be slowing down going into the spring. China’s consumption is critical as it is the second largest oil consumer in the world and a major driver for daily oil production.