EIJING (Reuters) – A senior Chinese official said on Tuesday it is difficult to proceed with trade talks with the United States while Washington is putting “a knife to China’s neck”, a day after both sides heaped fresh tariffs on each other’s goods.

When the talks can restart would depend on the “will” of the United States, Vice Commerce Minister Wang Shouwen said at a news conference in Beijing.

U.S. tariffs on $200 billion worth of Chinese goods and retaliatory taxes by Beijing on $60 billion worth of U.S. products including liquefied natural gas (LNG) kicked in on Monday, unnerving global financial markets.

“Now that the United States has adopted such a huge trade restriction measure … how can the negotiations proceed? It’s not an equal negotiation,” Wang said, stressing the United States has abandoned its mutual understanding with China.

The Chinese government’s top diplomat also told business people at a meeting in New York that talks could not take place against the backdrop of “threats and pressure”, the Foreign Ministry said.

Certain forces in the United States have been making groundless criticisms against China about trade and security issues, which has poisoned the atmosphere for Sino-U.S. ties and is highly irresponsible, State Councillor Wang Yi was quoted as saying, without naming anyone.

“If this continues, it will destroy in an instant the gains of the last four decades of China-U.S. relations,” Wang told members of the U.S.-China Business Council and National Committee on United States-China Relations.

U.S. representatives there included Blackstone Group LP (BX.N) co-founder and Chief Executive Stephen Schwarzman and Mastercard Inc (MA.N) Chief Executive Ajay Banga, the National Committee on United States-China Relations said on its website.

China also accused the United States of engaging in “trade bullyism”, and said Washington was intimidating other countries to submit to its will, according to a white paper on the dispute published by China’s State Council, or cabinet, on Monday.

Several rounds of Sino-U.S. talks in recent months have appeared to produce no breakthroughs, and fresh mid-level negotiations which had been expected in coming weeks have been shelved after Beijing reportedly decided late last week not to send a delegation to Washington.

While Vice Commerce Minister Wang said he still hopes “there is a way out” if both sides treat each other with sincerity, analysts say neither side looks to be in the mood to compromise in the increasingly bitter dispute, raising the risk of a lengthy battle that could chill the global economy by discouraging business investment and disrupting trade.

“The sharp criticism (from Beijing on Monday) suggests that China might prefer to wait out the current U.S. administration, rather than embarking on potentially futile negotiations,” Mizuho Bank said in a note to clients.

“Given these developments, it is increasingly likely that both sides will not resume negotiations for some time, at least until there is a noticeable shift in the political mood on either side.”

DISRUPTING GLOBAL SUPPLY CHAINS

U.S. exporters including LNG suppliers would “certainly” be hurt, but Beijing’s retaliation would provide opportunities to other LNG-exporting countries, Vice Commerce Minister Wang said, adding that Australia is an important source of the fuel for China.

“China is a big and powerful nation, so whether it is a confrontation with China economically or militarily, it would come at a huge price,” the state-backed Global Times said in an editorial on Tuesday.

“As such, it is an attractive prospect for other countries including the United States to coexist with China peacefully,” said the newspaper, which is published by the ruling Communist Party’s People’s Daily.

China does not know why the United States changed its mind after reaching an agreement with China on trade earlier, Wang said. He was apparently referring to talks in May, when it appeared that the two sides had sorted out a framework before the White House backed away.

Luo Wen, a vice minister at the Ministry of Industry and Information, told a news conference that the government is aware that some foreign companies are considering relocating out of China as the trade row threatens to heighten their risks and costs.

U.S. representatives there included Blackstone Group LP (BX.N) co-founder and Chief Executive Stephen Schwarzman and Mastercard Inc (MA.N) Chief Executive Ajay Banga, the National Committee on United States-China Relations said on its website.

China also accused the United States of engaging in “trade bullyism”, and said Washington was intimidating other countries to submit to its will, according to a white paper on the dispute published by China’s State Council, or cabinet, on Monday.

Several rounds of Sino-U.S. talks in recent months have appeared to produce no breakthroughs, and fresh mid-level negotiations which had been expected in coming weeks have been shelved after Beijing reportedly decided late last week not to send a delegation to Washington.

While Vice Commerce Minister Wang said he still hopes “there is a way out” if both sides treat each other with sincerity, analysts say neither side looks to be in the mood to compromise in the increasingly bitter dispute, raising the risk of a lengthy battle that could chill the global economy by discouraging business investment and disrupting trade.

“The sharp criticism (from Beijing on Monday) suggests that China might prefer to wait out the current U.S. administration, rather than embarking on potentially futile negotiations,” Mizuho Bank said in a note to clients.

“Given these developments, it is increasingly likely that both sides will not resume negotiations for some time, at least until there is a noticeable shift in the political mood on either side.”

DISRUPTING GLOBAL SUPPLY CHAINS

U.S. exporters including LNG suppliers would “certainly” be hurt, but Beijing’s retaliation would provide opportunities to other LNG-exporting countries, Vice Commerce Minister Wang said, adding that Australia is an important source of the fuel for China.

“China is a big and powerful nation, so whether it is a confrontation with China economically or militarily, it would come at a huge price,” the state-backed Global Times said in an editorial on Tuesday.

“As such, it is an attractive prospect for other countries including the United States to coexist with China peacefully,” said the newspaper, which is published by the ruling Communist Party’s People’s Daily.

China does not know why the United States changed its mind after reaching an agreement with China on trade earlier, Wang said. He was apparently referring to talks in May, when it appeared that the two sides had sorted out a framework before the White House backed away.

Luo Wen, a vice minister at the Ministry of Industry and Information, told a news conference that the government is aware that some foreign companies are considering relocating out of China as the trade row threatens to heighten their risks and costs.

China’s concerted chase for blue skies is making China Gas Holdings a hot stock as the gas distributor carries out an ambitious strategy to convert villages from burning coal to using the cleaner fuel. The stock is poised to rally 40% over the 12 months, according to the consensus of more than 20 analysts surveyed by Bloomberg. That gap over its current share price is the biggest since at least 2004 and is the most among its domestic peers. Shares of Chinese gas distributors have been on a roll, aided by President Xi Jinping’s battle against air pollution by curbing the nation’s reliance on sooty coal, and China Gas stands out for its rural connectivity strategy.

Fuel substitution in villages will drive the connected household growth, according to Goldman Sachs Group Inc, adding the government will extend environmental protection policies to new cities over the next three years. “Gas distributors continue to con- nect new customers at a transforma- tional pace, leading to acceleration in both earnings and cash flows,” Goldman analysts including Mark Wiseman said in an Aug 31 note. “Rural investment is a diff erentiator” for China Gas, they wrote. Shares of China Gas have gained 8.3% this year to close at HK$23.40 on Friday in Hong Kong, compared with a 12-month target price of HK$32.69. Of the 26 analysts covering the stock, 13 have the equivalent of a buy rating, while eight recommend holding and five calling for a sell, data compiled by Bloomberg show. The company began targeting rural areas in northern China since the central government strengthened anti-pollution measures by pushing for provinces to switch from coal to gas last year.

Other distributors such as ENN Energy Holdings and China Resources Gas Group Ltd have devoted less resources to rural projects as they’re worried about the low margins. China Gas’ focus on rural con- nections may make it vulnerable to changes in policies, such as lower subsidies or tighter restrictions for those projects, according to Jeff eries Group LLC and Daiwa Securities Co. Hebei province said in July that new conversion projects will only begin when suppliers are able to confirm gas availability, which could slow the rate of customer switching. Those concerns might be unjusti- fied, said Citigroup Inc, which has China Gas on its “Top Buys” list.

Oil exports from southern Iraq are heading for a record high this month, two industry sources said, adding to signs that Opec’s second-largest producer is following through on a deal to raise supply and local unrest is not affecting shipments.
Southern Iraqi exports in the first 19 days of September averaged 3.6mn bpd, according to ship-tracking data compiled by an industry source, up 20,000 bpd from August’s 3.58mn bpd — the existing monthly record.
The increase follows June’s pact among Opec and allied producers to boost supply after they had curbed output since 2017 to remove a glut.
Iraq in August provided Opec’s second-largest increase as shipments drop from Iran, which is facing renewed US sanctions.
A second industry source who tracks shipments also said exports this month had averaged 3.6mn bpd, reflecting smooth operations at export terminals and no sign that unrest in Basra, Iraq’s second city, was disrupting flows.
“There were fears that the protests would get to the terminal,” this source said. “But so far, there is no impact.”
Protests in Basra against Iraq’s political establishment erupted in July.
In early September, Basra airport was attacked with rockets and protesters briefly took oilfield workers hostage.
Before the June Opec deal, Iraq had been boosting exports from southern terminals to offset a halt in shipments from the northern Kirkuk region last October after Iraqi forces seized control of oilfields there from Kurdish fighters.
Northern exports have held steady in September, averaging around 400,000 bpd so far, according to shipping data and one of the industry sources.
This is up from about 300,000 bpd in July but short of levels above 500,000 bpd in some months of 2017.
On June 22-23, Opec, Russia and other non-members agreed to return to 100% compliance with output cuts that began in January 2017.
That amounted to an increase of about 1mn bpd, according to Opec’s lead member, Saudi Arabia.
A group of Opec and non-Opec ministers and officials monitoring the agreement met yesterday in Algeria.
Iraq has said it is ready to boost output and in August pumped an extra 90,000 bpd, Opec’s second-largest increase after Libya, according to analyst and oil-industry media estimates compiled by Opec.
Iraq itself said production in August was steady.

early weakness after the US announcement of additional tariff s on $200bn worth of Chinese imports. The broad-based recovery that followed in global stocks and currencies was driven by a combination of the US tariff s coming in at the lower 10% bracket and China, while responding with its own counter tariff s, announcing plans to cut taxes, lift consumption, and lowering its average tariff rate on imports from most of its trading partners as soon as October. While these developments may have helped sentiment, a proper de- escalation in China/US relations has yet to be seen. Given this, some caution is warranted unless the recent dollar weakness continues to provide support.

Growth-dependent commodities such as energy and not least industrial metals received a boost. Since June, when the trade war began, it has been worries more than actual data pointing towards a slowdown that has driven the negative sentiment. Any sign of easing tensions is therefore likely to trigger renewed demand from consumers who had put off purchases in recent months. Brent crude oil tested key resistance after Saudi Arabia said it was comfortable with Brent above $80/ barrel. The Saudi comment was probably driven by the realisation that Opec members and Russia are unable to off set the ongoing slump in Iranian production; President Trump renewing his attack on Opec and high oil prices in a tweet failed to weaken the price. Trump’s sanctions against Iran are the main reason behind the elevated prices currently seen.

The European power market continued its wild gyrations with renewed strength in ECX Carbon emissions and rising coal prices driving a new surge in power prices across the region. Natural gas jumped the most since January and the near 7% rally on the week saw it return to face resistance once again at $3/therm. The rally was driven by lower than expected Chinese tariff s on LNG imports from the US and stocks being some 18% below the seasonal average with just a few weeks left before winter demand sets in. Rising US production this year has been met with rising demand and rising exports. HG copper jumped more than 6% on China’s spending pledge and the move helped support a recovery among the semi-precious metals – not least palladium and platinum with the latter seeing its discount to gold drop to a six- month low from a record just a couple of weeks ago. Gold took some comfort from the weaker dollar but struggled to keep up with headwinds arising from higher US bond yields, the September 26 Federal Open Market Committee meeting, and a weaker JPY against the dollar. Gold’s struggle to keep up with a recovery among other metals was seen through the lower ratios against both copper and platinum.

The battle for a shrinking global liquidity pool will heat up over the coming months and the US needs to attract an increased amount of funds to cover its growing deficit. The weaker dollar despite rising US bond yields this past week may indicate that investors worried about rising US funding requirements no longer find the current yield levels attractive at the current dollar valuation. These developments may eventually see the greenback weaken, removing some of the recent pressure on emerging market countries struggling with their dollar debt at a time of rising interest rates. If this materializes, some profitable months may lie ahead for commodities as investors and funds turn short positions back into longs. Gold has been range-bound around $1,200/oz for the past month while its room for manoeuvring, as per the chart below, continues to narrow. At this point we maintain a neutral outlook while waiting for a trigger strong enough to take it out of the current range.

The combination of a record short and some dollar buying fatigue leads us to believe that the upside eventually will be challenged. Key levels to look out for to the upside are $1,212/oz, $1,224/oz and particularly $1,238/oz. A break back below $1,188/oz, however, could once again see the metal’s resolve being tested. Crude oil remains supported and at risk of breaking higher as supply concerns intensify. Despite increased production from some Opec members and Russia together with robust US export sales of crude, the market is turning increasingly tight. Iranian exports have already witnessed a sharp reduction and are likely to fall further when US sanctions come into eff ect in November.

Opec and its allies meet in Algiers on September 23 to discuss oil market developments. This follows the June Opec+ meeting, which saw the production cap deal nearly abandoned despite Iranian objections. With Saudi Arabia, Iraq, and Russia producing at will, a contentious meeting high on politics and low on results await. The major factor here is Tehran, as Iranian leaders feel betrayed and have said they will veto any Opec decision that harms their country. President Trump’s growing fondness for trying to impact markets via Twitter fell short of halting oil’s ascent after he once again went on the attack against Opec saying that they “continue to push for higher and higher oil prices”.

With Trump’s Iran sanctions expected to force a minimum drop of 1mn barrels/day there is little Opec and its allies currently can do to stem the risk of rising prices. The best they can hope for is that the short-term supply deficit will not push prices so high that it hurts the medium- to longer-term outlook for global growth and demand for oil. Ole Hansen is head of Commodity Strategy at Saxo Bank.

European Central Bank officials are starting to discuss priming investors for the euro area’s first interest-rate increase since 2011, a conversation that could see them putting the U.S. experience of three years ago under the microscope.

With the Governing Council indicating borrowing costs will stay at record lows “at least through the summer of 2019,” two of President Mario Draghi’s lieutenants are already talking about what happens after that. Executive Board members Benoit Coeure and Peter Praet want to communicate more on the pace of increases to avoid stirring up markets.

Concerns over the impact of tighter policy are likely heightened by the memory of the two increases in 2011 being swiftly undone as the euro zone tipped into recession. Officials insist the economy is now strong enough to face global risks from trade protectionism to Brexit, but also regularly cite market volatility as a risk. That makes a so-called dovish hike an attractive goal.

“What they are trying to communicate to investors is that the lift-off is going to be slow,” said Nick Kounis, head of macro and financial markets research at ABN Amro Bank NV in Amsterdam. “The ECB has learned its communication lesson from the Federal Reserve, and they want to make sure well ahead of time that markets are clear on their thinking.”

Under then-Chair Janet Yellen, the Fed was widely lauded when it raised rates in December 2015. After a rocky start in May 2013, when she was vice chair and her boss, Ben Bernanke, spooked investors by unexpectedly suggesting asset purchases might be tapered, the central bank successfully reached lift-off with barely a murmur of discontent in the markets.

Incremental Steps

The strategy was a series of incremental language changes, ranging from subtle to blatant, that signaled a rate hike was getting closer. As asset purchases ended in October 2014, the Fed said rates would stay near zero for a “considerable time.” That was dropped in January 2015 as the economy improved, though policy makers cautioned they’d remain “patient.”

In March, they pinned a hike on “further improvement in the labor market.” By July, a tweak to say the Fed awaited “some” further improvement in the labor market was a one-word addition that inched them toward liftoff. Officials finally teed up the decision in their October statement with an unusual reference to their “next meeting.”

Praet, the ECB’s chief economist, told an audience in New York on Thursday that communication on how to adapt policy beyond the first rate hike will become “increasingly important” next year.

Rate Path

Coeure, who is in charge of market operations and is a potential successor to Draghi in November 2019, said in Berlin that he would prefer to outline the economic conditions that justify higher borrowing costs.

He rejected publishing an expected path of interest rates, as Sweden’s Riksbank does. The Fed uses a so-called dot-plot chart compiling anonymous predictions by policy makers for how fast they expect rates to rise.

The Norwegian central bank showed last week how the pace of monetary tightening can matter more for markets than the actual timing of the first move. The krone dropped after Governor Oystein Olsen raised rates for the first time in seven years and lowered his projection for how fast they’ll climb in the years ahead.

The Bank of England, which in August raised its benchmark rate to the highest since the financial crisis, takes a milder approach, colored by the uncertainties surrounding the U.K.’s departure from the European Union. It says future increases in the key rate will be “at a gradual pace and to a limited extent.”

The process never stops. The Fed is currently wrestling with the question of where to end tightening, and Chairman Jerome Powell is considering how to change communication.

“If the ECB wants to be in control, the sooner they start talking about their plans the better,” said Anatoli Annenkov, senior economist at Societe Generale SA in London. “There are sufficient reasons to believe that at times the communication is quite difficult and markets may not believe you.”

LONDON (Reuters) – New U.S. liquefied natural gas terminals with enough capacity to double U.S. exports have either begun commissioning their facilities or are waiting for approval from the energy regulator, a review of their documents showed this week.

Although long planned, the actual commissioning of plants has been a moving target in the past.

Yet the process not only kicks off a new era for the global industry as the United States turns into a significant exporter. It also opens the taps for large volumes to hit the spot market before long-term commercial contracts are formerly triggered.

The ramp up of U.S. LNG production comes just as U.S. President Donald Trump boasts of his country’s energy dominance across the world stage but may also hit a wall of Chinese tariffs set on the super-chilled fuel earlier this week.

Activity at five terminals dotted mainly on the U.S. Gulf Coast means some production will start ahead of schedule with two or three plants producing their first cargoes this year, one as early as November.

Analysts now estimate anywhere between 1.0 and 2.5 million tonnes of LNG will hit the spot market in the first quarter of next year, a significant amount in an industry still dominated by rigid multi-year supply contracts.

While China is the second largest LNG importer in the world, its purchases of U.S. cargoes is low at 5 percent of the total it buys. Japan and South Korea are the other top importers.

Based on regulatory filings and analysts’ forecasts, the first LNG is expected in December from Kinder Morgan’s Elba Island and Cheniere Energy’s Sabine Pass train 5, and in the second quarter from Sempra’s Cameron terminal and Freeport LNG’s terminal.

Additionally, the pace of Federal Energy Regulatory Commission (FERC) approvals for Cheniere’s Corpus Christi plant surprised the industry last month with Wood Mackenzie now seeing first LNG from the Texas terminal as early as November.

“We see somewhere between 2.0 to 2.5 million tonnes of additional U.S. supplies in the first quarter,” said Trevor Sikorski, analyst at Energy Aspects. “We think probably, most of the 2.5 million will be put into the spot market.”

Spot market volumes are not recorded but industry group GIIGNL calculates around 77.6 million tonnes, or 6.4 million a month, were traded on spot basis or in short-term contracts last year.

U.S. exports, at 15 million tonnes so far this year, have exceeded last year’s of 14.3 million tonnes, according to Thomson Reuters data. U.S. capacity has been 23.3 million tonnes a year (mtpa) since March when the second LNG terminal in the country, Dominion Energy’s Cove Point, came online.

DOUBLING EXPORTS

Cheniere, Sempra, Kinder Morgan and Freeport told Reuters their timetable for start-ups remained unchanged from their latest announcements.

The four new terminals and one extension will come onstream in stages over the next two years and at capacity they will constitute 60 percent of new supplies expected to be added to the global market by 2023. The first trains and one extension alone have a capacity of 19 mtpa.

Commissioning U.S. energy facilities involves a back and forth process with FERC which reviews and approves many stages of the start-up. The last major milestone before production is FERC’s approval to inject feedgas that gets chilled into LNG.

Cheniere’s Corpus Christi Train 1 and Sabine Pass Train 5 both received that FERC approval in recent weeks. At 4.5 mtpa each, the trains add 9 mtpa to U.S. capacity.

Privately-held Freeport LNG has been given permission to commission utilities at its 5 mtpa Train 1. It pushed back the start date of commercial activities to September 2019 leading traders and analysts to expect LNG exports to start in May.

Sempra has filed all its pre-commissioning documents for Cameron Train 1, with capacity of 5 mtpa, allowing it to move ahead with initial commissioning.

Kinder Morgan appears to be the furthest behind in the regulatory approval and commissioning process, the filings show. But traders say its modular design with much smaller units of 0.25 mtpa each means an initial cargo is possible this year.

ALGIERS (Reuters) – OPEC’s leader Saudi Arabia and its biggest oil-producer ally outside the group, Russia, ruled out on Sunday any immediate, additional increase in crude output, effectively rebuffing U.S. President Donald Trump’s calls for action to cool the market.

“I do not influence prices,” Saudi Energy Minister Khalid al-Falih told reporters as OPEC and non-OPEC energy ministers gathered in Algiers for a meeting that ended with no formal recommendation for any additional supply boost.

Benchmark Brent oil LCOc1 reached $80 a barrel this month, prompting Trump to reiterate on Thursday his demand that the Organization of the Petroleum Exporting Countries lower prices.

The price rally mainly stemmed from a decline in oil exports from OPEC member Iran due to fresh U.S. sanctions.

“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!” Trump wrote on Twitter.

Falih said Saudi Arabia had spare capacity to raise output but such a move was not required at the moment and might not be needed next year as, according to OPEC’s projections, a stellar rise in non-OPEC production could exceed global demand growth.

“The markets are adequately supplied. I don’t know of any refiner in the world who is looking for oil and is not able to get it,” Falih said, adding that Saudi Arabia could raise output by up to 1.5 million barrels per day (bpd) if needed.

“Given the numbers we saw today, that (an output increase in 2019) is highly unlikely unless we have surprises on the supply and demand,” Falih added.

The statement from Trump, meanwhile, was not his first criticism of OPEC.

Higher gasoline prices for U.S. consumers could create a political headache for Republican Trump before mid-term congressional elections in November.

Iran, OPEC’s third-largest producer, has accused Trump of orchestrating the oil price rally by imposing sanctions on Tehran and accused its regional arch-rival Saudi Arabia of bowing to U.S. pressure.

On Sunday, Iranian Oil Minister Bijan Zanganeh said Trump’s tweet “was the biggest insult to Washington’s allies in the Middle East”.

SHIFTING FOCUS TO 2019

A mid-term report released by OPEC on Sunday forecast that non-OPEC supply from countries led by the United States would rise by 2.4 million bpd in 2019 while global oil demand should grow by just 1.5 million.

It also steeply raised U.S. oil output growth estimates to 2023, predicting OPEC would lose further market share.

“Our attention is shifting to 2019. We have been briefed on the prospect of 2019 inventory builds which result from significant supply growth from non-member counties,” Falih said.

Russian Energy Minister Alexander Novak said no immediate output increase was necessary, although he believed a trade war between China and the United States as well as U.S. sanctions on Iran were creating new challenges for oil markets.

“Oil demand will be declining in the fourth quarter of this year and the first quarter of next year. So far, we have decided to stick to our June agreements,” Novak said.

Seeking to reverse a downturn in oil prices that began in 2014, OPEC, Russia and other allies decided in late 2016 to reduce supply by some 1.8 million bpd.

In June this year, however, after months of cutting by more than their pact had called for, largely due to involuntary reductions from Venezuela and other producers, they agreed to boost output by returning to 100 percent compliance.

That equates to an increase of about 1 million bpd, but the latest data shows they are some way from achieving that target.

IRAN SOFTENS STANCE

In August, OPEC and its allies cut production by 600,000 bpd more than their pact required, mainly as a result of falling output in Iran as customers in Europe and Asia reduced purchases ahead of the U.S. sanctions deadline.

OPEC put Iran’s current production at 3.58 million bpd, down some 300,000 bpd from the start of the year, according to OPEC’s secondary sources such as researchers and ship-trackers.

Iran’s OPEC governor Hossein Kazempour Ardebili insisted on Sunday that Iranian production was steady at 3.8 million bpd but appeared to soften his stance on potential increases in OPEC output.

“If there is a fall not only from Iran, but anybody else, it is the responsibility of OPEC and non-OPEC to balance the market,” Kazempour told reporters.

Falih said returning to 100 percent compliance was the main objective and should be achieved in the next two to three months.

Although he refrained from specifying how that could be done, Saudi Arabia is the only oil producer with significant spare capacity.

“The biggest issue is not with the producing countries, it’s with the refiners, it’s with the demand. We in Saudi Arabia have not seen demand for any additional barrel that we did not produce.”

The OPEC/non-OPEC monitoring committee next meets on Nov. 11 in Abu Dhabi, followed by a full OPEC gathering at its Vienna headquarters on Dec. 6-7.

Africa’s biggest oil and natural gas producer plans to expand in most areas of the energy industry except for crude, shunning US President Donald Trump’s latest Twitter directive for Opec members to reduce oil prices.
Algeria’s state-owned Sonatrach Group plans to develop onshore and offshore gas fields, start a trading business, revamp and build refineries and expand output of petrochemicals, chief executive officer Abdelmoumen Ould Kaddour said in an interview. While Sonatrach could boost oil production by 200,000 bpd, there is no need for an imminent increase in supplies, he said.
Algeria is the third-biggest gas supplier to the European Union.
The Organisation of Petroleum Exporting Countries gave a tepid response on Sunday to Trump’s tweet last week insisting that the group “must get prices down now!” Opec, along with allied producers, said it would boost output only if customers requested additional oil. The producers are halfway toward their June pledge to pump an extra 1mn bpd of crude.
“Trump tweets are disturbing, but fortunately this time he did not have an impact on the Opec decision,” Kaddour said. “The price of oil is subject to many variables.”
The “right price, the fair price,” for both consumers and suppliers is between $70 and $80 a barrel, Kaddour said.
Algeria spearheaded the effort by Opec and allies including Russia to push prices higher by cutting production. The cuts took effect in January 2017, though producers changed course in June and committed to increase output to make up for losses in Venezuela and Iran.
Sonatrach could produce an additional 200,000 bpd if necessary, Kaddour said. Algeria pumped 1.07mn bpd of oil in August, and production has declined from a peak of 1.41mn bpd in December 2007. Output including gas is equivalent to 3mn bpd, making it the biggest combined producer of oil and gas in Africa, according to data compiled by Bloomberg.
The government is working on a law to entice foreign investors and reduce taxes and bureaucracy, and it may take effect by early 2019, he said.
Sonatrach expects to enter into a joint venture agreement with Exxon Mobil Corp, and will form a partnership with Total SA to build a $1.5bn petrochemical plant by the end of the year, Kaddour said.
Sonatrach is also in discussions with 14 companies, including Chevron Corp, Total and Vitol SA, to form an oil and gas trading joint venture, he said. “We are looking for new ways of trading our products,” he said, though the company hasn’t decided whether to partner with an oil producer or a trader.

Oil prices jumped more than 2% to a four-year high in early trading after Saudi Arabia and Russia ruled out any immediate increase in production despite calls by US President Donald Trump for action to raise global supply.
The Organisation of the Petroleum Exporting Countries and non-Opec states, including top producer Russia, gathered in Algiers on Sunday for a meeting that ended with no formal recommendation for any additional supply boost to counter falling supply from Iran.
“The market’s still being driven by concerns about Iranian and Venezuelan supply,” said Gene McGillian, director of market research at Tradition Energy in Stamford. “The failure of the producers to address that adequately this weekend is creating a buying opportunity.”
Brent crude hit its highest since November 2014 at $80.94 per barrel, up $2.14 or 2.7%, before easing to $80.62 by 11.05am EDT (1505 GMT). US light crude was $1.43, or 2%, higher at $72.21.
Opec lead member Saudi Arabia and its biggest oil-producer ally outside the group, Russia, on Sunday effectively rebuffed a demand from Trump for moves to cool the market.
“I do not influence prices,” Saudi Energy Minister Khalid al-Falih told reporters on Sunday. Trump said last week that Opec “must get prices down now!”, but Iranian Oil Minister Bijan Zanganeh said yesterday Opec had not responded positively to Trump’s demands.
“It is now increasingly evident, that in the face of producers reluctant to raise output, the market will be confronted with supply gaps in the next three-six months that it will need to resolve through higher oil prices,” BNP Paribas oil strategist Harry Tchilinguirian told Reuters Global Oil Forum.
Commodity traders Trafigura and Mercuria said that Brent could rise to $90 per barrel by Christmas and pass $100 in early 2019, as markets tighten once US sanctions against Iran are fully implemented from November.
JPMorgan said US sanctions on Iran could lead to a loss of 1.5mn bpd, while Mercuria warned that as much as 2mn bpd could be knocked out of the market.
A source familiar with Opec discussions told Reuters on Friday that Opec and other producers have been discussing the possibility of raising output by 500,000 bpd. “We expect that those Opec countries with available spare capacity, led by Saudi Arabia, will increase output but not completely offset the drop in Iranian barrels,” said Edward Bell, commodity analyst at Emirates NBD bank.
The market has looked to softening demand from trade tensions between the US and China to offset the production cuts from Iran. Absent signs that trade tensions have eroded Chinese demand, the market will continue to surge, Tradition’s McGillian said. “That is one of the reasons we have cruised toward $80,” he said.
US commercial crude oil inventories are at their lowest since early 2015 and although US oil production is near a record high of 11mn bpd, subdued US drilling points towards a slowdown in output.

Rival Shiite Factions Could Be Headed Toward Disaster

When Iraq and the international community liberated Mosul last year, the Iraqi government declared victory: the three-year conflict against jihadist terrorists who had seized much of the country’s north was over. But the declaration was premature. ISIS remains a major threat, not only because of its own acumen as an insurgent movement but because Iraq’s ruling elites have failed to address the conditions that enabled ISIS in the first place. Their failure to address the basic needs of a deeply destitute and conflict-weary population, to remedy political and social divisions, and to forge a common national framework that unifies the country could soon pave the way for yet another devastating civil war as rival groups compete for control of the Iraqi state.

After the parliamentary elections in May 2018, Iraq was supposed to turn the page to a new, post-ISIS, even post-sectarian chapter, in which politicians would remedy the country’s polarization, endemic corruption, and violent instability. Yet things are getting worse, not better, for Iraq. Iraq’s weakened Prime Minister, Haider al-Abadi, who came in third in the elections, put forward a series of tokenistic anti-corruption initiatives that failed to convince Iraqis who are impatient with piecemeal, symbolic reforms. Corruption can take years to remedy, Iraq’s politicians explain—patronizing a population that has already waited more than fifteen years for reform.

The elections were followed by mass demonstrations in much of southern Iraq, including Basra, where protestors burned provincial council buildings and the Iranian consulate and stormed the offices of political parties. Iraq’s security forces and government-sanctioned Shiite militias responded with deadly force and human rights abuses. Basra holds Iraq’s largest oil reserves, accounts for 80 percent of the country’s oil exports, and provides more than $7 billion a month to the government coffers. It should be Iraq’s richest province, but it is among its poorest. Like much of Iraq, the city lacks clean water, electricity, and jobs.

The combination of a frustrated population and a government that lacks both the credibility and the capacity to assuage it makes for a perilous situation. Iraq has all the makings of a country that is susceptible to conflict relapse, and rather than turn a new chapter it could find itself in another civil war. Beyond political and social polarization, it suffers from the inexorable accumulation of weapons and military organizations, the absence of viable institutions, and multiple alternative authorities that supplant the Iraqi state. Many areas are beyond the influence and control of the government, including the predominantly Shiite south, where power is distributed diffusely among parties, militias, tribes, and clerics.

Since 2003 large-scale conflict in Iraq has been between Arab Sunni and Shiite communities. But in the coming phase, conflict in Iraq will most likely be between the powerful, resource-rich, and battle-hardened Shiite rival factions that dominate the government.

INTRA-SHIITE RIVALRIES

When ISIS rose in 2014, it filled a political and ideological void that still exists today. It capitalized on feelings of marginalization among Iraqi Sunnis, as well as discontent with the corruption and dysfunction of the Baghdad government. These deep-rooted resentments are still present, but Sunni Arabs are unlikely to mobilize for the foreseeable future. They are too bruised, bloodied, and fatigued as a result of countless wars against enemies internal (ISIS, al Qaeda in Iraq, tribal infighting) and external (the United States, the Shiite-dominated Iraqi armed forces, and sectarian Shiite militia groups).

Instead, Iraq’s next war will likely be a civil war between Shiite Islamist rivals. These groups have dominated Iraq’s most powerful government posts and its security institutions since 2003. They have deployed or co-opted militia groups to secure substantial state resources. Collectively, Shiite militias are more powerful than the Iraqi armed forces, which collapsed in the face of the ISIS offensive in 2014.

Shiite militias do not submit to government control, but they are entrenched within state institutions and exploit state resources. Iraq’s most powerful and oldest militia, the Badr Brigade (formed in the 1980s in Iran), commands the federal police and has headed the Interior Ministry since 2003. After the fall of former dictator Saddam Hussein, the Badr Brigade fought bloody battles with anti-West cleric Muqtada al-Sadr and his Mahdi Army militia. Prime Minister Abadi’s Islamic Dawa Party does not have its own militia but has abused its control over the armed forces to suppress its rivals. It has also mobilized and armed tribal factions.

Rivalries among the Shiite factions predate the 2003 U.S. invasion of Iraq. Since 2003, bloody conflicts among Iraqi Shiites have required intense mediation by political and religious leaders, including, in some cases, those from outside powers, such as Iran. In 2005, Grand Ayatollah Sistani, the leading Shiite clergyman, was forced to mediate between rival Shiite groups amid a deadly Sunni insurgency. Iraq has avoided a full-scale, internal Shiite conflict so far because it has been occupied with the Sunni insurgency, al Qaeda in Iraq, and then ISIS. These threats still lurk in the background but are not the imminent, existential threats they once were for the ruling Shiite community.

The contestation over state resources, including the high-stakes, dispute-ridden government formation process (that determines the ruling class’s share of the Iraqi state and its resources) is rapidly turning into a zero-sum game. Unlike in the past, Iraq’s Shiite factions cannot continue to get away with carving up the state among themselves while they deliver empty promises to a discontented population. The popular demand for reform is so urgent and so great that even the Shiite religious establishment has intervened to insist that the government address it. Yet the real risk that a single faction will weaponize government coffers and exploit the reform process in the coming years renders these political conflicts potentially existential ones to the groups involved.