Publications: Notes at the Margin

China, IMO 2020, and Assassination (January 6, 2020)


This first issue for 2020 covers three topics. We start by noting that most global oil market analyses assume that the market model that has applied since 1990 or at least 2000 still applies today. This certainly seems to be true for central banks and most academics, especially as reflected in many papers by economist Lutz Killian. We suggest that this view is incorrect. China has become perhaps the most important factor in the oil market. Yet China’s actions in accumulating crude oil stocks and expanding refining capacity have been ignored by columnists such as John Kemp of Reuters and Julian Lee of Bloomberg. More importantly, China’s threat to the profitability of US refiners such as Marathon, Valero, and Phillips 66 also seems to have been ignored. Those who have failed to consider China will be very surprised by market developments in 2020.


Our report also examines the impending impact of IMO 2020, which is now in effect. As noted often on these pages, the rule’s effect will likely be delayed until stocks fall. We note that Argus Media just woke up to this fact.


Finally, we discuss the impact of the assassination of the Iranian general Qassem Soleimani on markets. Oil prices jumped on Friday following the news, as would be expected. However, the longer-run impact will likely be muted unless Iran attacks Middle Eastern oil-producing facilities and causes serious long-term damage. We see such a move as unlikely. Instead, Iranians appear determined to force the United States out of the Middle East. They are being aided by the spreading popularity of isolationism in our country.


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