What to Watch

China’s Oil Futures Soar on Debut

China’s yuan-denominated crude-oil futures surged on their debut Monday, indicating positive initial sentiment toward the new market, which Beijing hopes will eventually give the country an oil benchmark to rival those in the U.S. and Europe.

“In the longer term, the futures exchange will enable China’s crude-buying patterns to become more transparent to the world,” said Sushant Gupta, research director at Wood Mackenzie.

The oil consultancy firm projects China’s crude import requirements may grow by about 2.1 million barrels per day from 2017 to 2023, larger than any other country’s incremental imports.

China became the world’s biggest importer of crude in 2017.

Energy News

U.S., China Quietly Seek Trade Solutions After Days of Loud Threats

China and the U.S. have quietly started negotiating to improve U.S. access to Chinese markets, following the Trump administration’s threat to use tariffs to punish Chinese firms for what it says are unfair trade practices.

The trade spat has helped put pressure on oil as crude prices edged down slightly on Monday morning. Brent crude, the global benchmark, was down 0.07%, at $69.76 a barrel on London’s Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.36%, at $65.64 a barrel.

Russia Is Still China’s Top Supplier

Russia held on to its position as the largest supplier of crude to China last month.The Eurasian country sent 1.32 million barrels per day of oil to China in February, up 17.8% from a year earlier.

 

“If they [China] open up their markets, it is an enormous opportunity for U.S. companies.”

– Steven Mnuchin, U.S. Treasury Secretary

Shale Firms Are Starting to Pony up Dividends

Top U.S. shale firms such as Anadarko Petroleum Corp and ConocoPhillips are starting to pay out dividends this year. Almost a third of top firms have compensated their investors, or promised to do so this year, Reuters reports.

WSJ Energy In-Depth

Taking Aim at a Trade Gap? It’s Easy to Miss the Target

The oil experience is a cautionary tale that you can’t shrink a national trade deficit by targeting one product or one country or set of countries, writes the WSJ’s Josh Zumbrun.

America’s energy boom helped erase an oil and trade deficit with the nations of the Organization of the Petroleum Exporting Countries, but the overall U.S. trade gap widened.

The oil story could provide a blueprint for what might happen next as the Trump administration tries to close the U.S. deficit with tariffs on steel, aluminum and a range of goods from China.

Trade balances are a function of how much Americans invest and save, say experts. Oil production went up during the boom, but domestic spending across the broad economy went up even more.

“The trade deficit doesn’t come from the fact that we’re importing this good or that good,” said James Hamilton, an economist at the University of California, San Diego. “The trade balance is primarily determined by the overall spending on goods and services by U.S. residents and firms, compared to production. If spending is more than production, we’ve got to import.”

Energy Journal Exclusive

It’s a Matter of Trust

Never trust a skinny chef. Romain Py, the head of transactions at African Infrastructure Investment Managers, said investors should also never trust an Africa-focused investment manager that isn’t based on the continent.

The Cape Town-based Mr. Py is managing about $180 million in a fund for AIIM, the private equity arm of the more-than-a-century-old financial services group Old Mutual Alternative Investments, with a presence in Africa and Europe.

Mr. Py’s fund is one of seven aimed at making investments in a wide array of infrastructure such as power plants, roads, ports and midstream assets like pipelines for oil and gas across the continent’s 54 countries.

He recently stopped in London to talk to clients.

The following are edited excerpts from an interview on Friday with The Wall Street Journal.

Q: What are your targets?

A: We think we can deploy [$500,000] in a 5-year horizon at returns which we are targeting around 20%, compared to maybe the U.S. infrastructure market at 7% or 8% for similar types of infrastructure.

Q: Are you seeing investments flowing from the U.S. to Africa?

A: [No], it’s a market that is far away from the audience. For people just because of the distance and the fact that it is less familiar, it sounds more risky. But in fact, from a risk perspective, it is less.

Q: How so?

A: At the end of 2015 we invested in a [450 megawatt] gas-fired thermal power plant in Nigeria called Azura-Edo. [The state company contracted to] buy the power was credit enhanced by a partial risk guarantee from the World Bank and political risk insurance from MIGA.

The partial risk guarantee is a liquidity instrument. If the government doesn’t pay you…the company can draw down on the letter of credit from the World Bank.

Q: Are you energy agnostic?

A: Nearly, we don’t do coal and we don’t do nuclear power.

Q: What is your advice for institutions looking to invest in Africa?

A: If you invest in Africa, it makes no sense to invest through a team that is not present on the ground. Doing Africa investing out of New York, London or Dubai makes no sense and is just a recipe for disaster.

Big Number

$8.1 billion

The world’s biggest refiner, China Petroleum & Chemical Corp., is set to pay out  a record dividend following a rise in profits. The company, also called Sinopec, reported its net income rose to $8.1 billion in 2017, according to Bloomberg.

 

FutureCurve

Tuesday: The American Petroleum Institute releases its weekly forecasts on U.S. petroleum inventories for the week prior.

Wednesday: The U.S. Energy Information Administration releases U.S. production figures.

April 18–19: IQPC hosts the Oil & Fuel Theft Summit in Geneva. Speakers include Mahmoud Al-Bayati, the director general for counter-terrorism for Iraq, William J. Waggoner, the Chief Executive Officer for the Mexico Petroleum Company and Daniel Gianfalla, a member of the national maritime security advisory committee at the U.S. Department of Homeland Security.