As commodity funds were getting a little too comfortable shorting crude, President Trump engineered a snap back with one little tweet, writes Phil Flynn.
Just as commodity funds were getting a little too comfortable pushing the short side of crude oil, President Donald Trump engineered a snap back with just one little tweet. The President revived hopes for a settlement of the U.S.-China trade war tweeting that he “Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.”
Crude market turned just like that, along with the help of a roaring stock market that was getting support from the fact that Mario Draghi was adding more stimulus.
And behind all the madness, the geopolitical risk factors keep rising. Fox News reports that “Iraqi officials say a rocket hit an oil-drilling site in southern Basra province, striking a camp housing energy giant Exxon Mobil (XOM) and wounding three local workers, one seriously. Security official Mahdi Raykan says a Katyusha rocket landed early Wednesday in the Zubair and Rumeila oil fields camp, operated by the Iraqi Drilling company, where Exxon Mobil has tents.”
This may change the game because for the first time, an attack was directly against a U.S. interest.
In a Wall Street Journal article today, U.S. officials were saying that it was not their sole responsibility to protect ships in the Persian Gulf region, like they did in the 1980 tanker wars. One reason Air Force Gen. Paul Selva, the vice chairman of the Joint Chiefs of Staff, gave on Tuesday was “If we take this on as a U.S.-only responsibility, nations that benefit from that movement of oil through the Strait of Hormuz and the Persian Gulf are bearing little or no responsibility for the actual economic benefit that they gain,” he said. Yet now with a report that Exxon Mobil camp was hit, that may change.
It may also increase the odds that the U.S. military will strike back at Iran if it is proven that Iran was responsible. It seems like Iran wants to keep poking the bear and may want a fight. Their threat to enrich more uranium is going to lose more of their allies and Iran is maybe backing itself into a corner. U.S. officials say they want Iran back at the negotiation table.
Then you have OPEC. OPEC is looking to try to secure a date for its next meeting. Reuters is reporting that OPEC has again proposed to move the date of its next meeting, now suggesting July 1-2, two sources familiar with the matter said, as Saudi Arabia, Iran and non-OPEC Russia are struggling to agree to a compromise. Previous proposals included dates for an OPEC meeting followed by a meeting with non-OPEC allies on June 25-26 and July 11-12. Regardless of the meeting date, the market is already expecting an extension of production cuts.
The Fed meeting is also key. The Fed has signaled to the market that a rate cut is likely at the next meeting in July. The main reason is that worries of trade war uncertainty are slowing the global economy and putting the U.S. at risk. Now one might wonder if the Fed will change its mind if a U.S.-China trade deal indeed gets done. The one thing we do know is that the Fed is getting impatient with the term “patience approach.” If the Fed comes off as dovish, oil will soar as funds will have to exit.
The energy markets will also get the Energy Information Administration (EIA) supply report today. If the API is any indication, we should see a crude drawdown. The API reported that crude stocks fell 812k barrels last week, while Cushing supply increased by 519k barrels. Gasoline increased by 1.46 million barrels and distillates fell by 50k barrels. The Trade will look hard at EIA adjustment numbers that have risen by a historically astronomical amount over the last five weeks. The EIA hopefully will soon have an explanation. It is critical to know because if those adjustments are unusable oil, it may be giving the market a false sense of supply security.
Natural gas is still in trouble as summer takes a holiday. I guess it is only fair because everyone else takes advantage of summer. Forget about your gasoline bill; just think how much money you are saving not turning on your air conditioning. Natural gas is in trouble as demand is weak and production rising.
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