The island of Neverland rattles the oil market

The island of Neverland rattles the oil market

Elisa Maria Giannetto
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The sea of south-east Asia may be the next hot spot of international geopolitics, liable to influence oil prices

There is a strip of sea behind the tensions between the US and China that are shaking the oil market. Namely three and a half million square kilometres of ocean in the South China Sea currently claimed by China, the Philippines, Malaysia, Brunei and Taiwan, claims to which the United States is strongly opposed. The strongest claims are being made by China that in parallel, in a questionable operation, is moving sand from the sea floor to create large artificial islands for military purposes. Although it is the economic reasons of the Xi government that are doing the most to further destabilize the international balance. The area is in fact rich in mineral and natural resources: according to EIA estimates, in these waters there are 11 billion barrels of oil and 5.4 billion cubic meters of natural gas. In addition, the South China Sea is the world’s second major trade route. Over 50% of the planet's entire shipping freight passes through the Straits of Malacca, Sunda and Lombok that surround it. According to the oil price monitoring site TankerTrackers.com," more than 15 million barrels of oil a day pass through this area, shipped on tankers from the Persian Gulf to China, Japan, South Korea and Taiwan." And as much as 170 billion cubic meters of liquefied natural gas pass through these waters every year. If this tract were blocked, oil and LNG supplies would be affected, and prices would skyrocket, conditioning the entire global market. We are clearly faced with a cake that is also tempting to the oil giants: Exxon, as well as Gazprom and Rosneft, have aims on the area's offshore oil and gas fields. But no one is prepared share the slice. And some people think that it is in order to defend the interests of the oil tycoons, Rex Tillerson, US secretary of state, has taken the hard line: "China should be denied access to the artificial islands built in the South China Sea," said the US Secretary recently. While Sean Spicer, the White House press secretary, added that "the United States will protect their interests in that area and will try to figure out if these islands are located in international waters and are not in fact Chinese-owned''. Meanwhile, oil prices seem to have reached an area defined as "dangerous" by the EIA. Having stopped at around 52 dollars a barrel, prices are more likely to slip downwards than take an upward turn. This is counterbalanced by David Seaburg, head of sales trading for Cowen & Co., with a more optimistic forecast based on the holding of oil prices, despite the increase in US reserves and the resumption of extractive activities. The real doubt remains as to the holding of the OPEC agreement in the medium to long term. According to latest data from S&P Global Platts, the company that controls the monthly production of OPEC, earlier this week the signatories of the agreement reached 91 percent of their cuts compared to October, reducing their production by around 1.14 million barrels per day. But the good results achieved, attained in particular thanks to Saudi Arabia, could lead some states to rest on their laurels.