Americas News
Brent Falls in Wake of Latest North Korea Underground Nuclear Testing
A further escalation of saber-rattling from North Korea via its underground testing of an advanced hydrogen bomb caused traders on Monday to move away from crude markets to assets such as gold: Brent dropped 68 cents to $52.07 per barrel, while West Texas Intermediate dropped 8 cents to $47.21 per barrel.
The latter's more stable showing was reportedly due to several U.S. refineries restarting operations in the wake of Hurricane Harvey; the poor market showing overall is also said to have been influenced by the Labour Day holidays in many countries.
The good news is that while Harvey has proven to be more costly (as high as $180 billion in damages) than Hurricanes Katrina or Sandy, it is becoming evident that the energy industry was spared major damages to assets and infrastructure.
This is no solace to the Organization of the Petroleum Exporting Countries (OPEC), one delegate of which told Reuters, "It seems no event will move the oil price up much"; indeed, U.S. energy secretary Rick Perry authorizing the release of 4.5 million barrels from the U.S. Strategic Petroleum Reserve to help Gulf Coast refiners deal with local supply disruptions are expected to further depress oil prices.
Dan Katzenberg, an oil industry analyst at R.W. Baird & Co., says Harvey isn't exactly in everyone's rear view mirror just yet: "Harvey is going to have a longer effect on the oil industry than anyone would have imagined; it's just a real mess on so many levels."
But North Korea overshadows everything in terms of calamitous potential: in a bid to explore all options and avoid outright war, U.S. president Donald Trump threatened to end all trade with any country that does business with the Kim Jong Un regime - a move China calls unacceptable (Beijing's reluctance to take action against North Korea stems from a fear that its collapse would result in a unified Korea and the U.S. military gaining influence on its border).
Critics point out that even if China banned all oil supplies to the rogue nation, North Korea would have stockpiles to sustain critical operations and could earn cash for its weapons programs from its remaining non-sanctioned exports (plus, its oil consumption is a minuscule 15,000 barrels per day according to the Energy Information Administration).
This would render meaningless a suggestion from Yoshihide Suga, chief cabinet secretary for Japan, who said in the wake of the latest nuclear test that sanctions options against North Korea include restrictions on oil-products trade.
Shen Dingli, deputy dean of Fudan University's Institute of International Studies in Shanghai, suggested that short of military action, nothing will sway the Jong Un regime. "Sanctions would be more like gestures; North Korea is engaged to develop nuclear weapons, and none of the two powers can change that."
Last week, Wood Mackenzie warned in a report that military action could halt crude oil imports to South Korea, Japan, and China, which account for 34 percent of seaborne oil trade and "severely" affect markets; however, it conceded that "regional stockpiling and increased logistics costs could equally lead to a short-term price premium."
