China Called, or Did They?

08/26/2019 1:22 pm EST

Focus: ENERGY

Phil Flynn

Senior Energy Analyst, The PRICE Futures Group

Markets responded to claims that US-China trade talks are back on, but it is not clear they are, reports Phil Flynn.

China called; did you get the message? Did anything happen overnight? Let me get this straight. At first, we were tanking on reports that the U.S. was isolated at the G-7 summit on trade and the environment. Then China's plans for retaliatory tariffs on U.S. goods did not sit well with President Trump. Then the President said who needs China anyway? President Trump said we would be better off without them. Then Trump said he was going to impose more tariffs and our U.S. companies should look for alternatives to China. Those threats made for an icy welcome at the G-7 meeting. The fear of an escalating trade war with China set stocks tanking on the re-open on Sunday night. How’s that for the start of a new week?

Gold soared on safe haven bids hitting upper resistance, and crude oil was down over a dollar on fears that trade war uncertainty would muddle, if not reduce, the global oil demand outlook. Of course, that was a couple of hours ago. Now we are back to having talks with China and maybe even diplomatic talks with Iran!

President Trump said, “China called last night our top trade people and said, ‘let’s get back to the table.’ They have been hurt very badly, but they understand this is the right thing to do and I have great respect for it,” Trump told reporters during a bilateral meeting with Egyptian President Abdel Fattah el-Sisi on the sidelines of the G7 summit. This comment reversed markets as gold gave up its gains and oil and stocks turned positive. “They want to make a deal,” Trump said, “That’s a great thing.” Except that China might not have made the call.

Chinese Foreign Ministry spokesperson Geng Shuang said, "I haven't heard about this". I am sure he was concerned they were keeping him out of the loop. Politico reported that Treasury Secretary Steve Mnuchin told reporters that Chinese Vice Premier Liu had called for talks to resume when Trump pressed him for details during a bilateral meeting later in the afternoon with the Indian prime minister. It wasn't immediately clear, however, if Mnuchin was referring to a phone call Liu made to U.S. officials or his comments at a technology conference earlier in the day.

Should we now pay more attention to U.S.-China trade talks or U.S.-Iranian talks that could unleash Iranian oil barrels back on the market. Maybe you just need to trade short term with the charts? The Wall Street Journal reported that President Trump also backed away from confrontation over Iran on Monday, a day after French President Emmanuel Macron stunned other leaders by inviting Iran’s foreign minister to Biarritz for talks on the stand-off between Washington and Tehran. Trump told journalists that they had been wrong to report that he was blindsided by the five-hour visit of Mohammad Javad Zarif to the summit’s sidelines and said that while he thought it was too soon for a meeting, he had no objections to it.

Global economic turmoil, low oil prices and demands by investors for shale producers to produce profits has companies in drilling retreat. Baker Hughes BHGE, -2.57% on Friday, reported that the number of active U.S. rigs drilling for oil declined by 16 to 754 this week. That was the biggest weekly decline since late April, when Baker Hughes reported a weekly drop of 20 oil rigs. The total active U.S. rig count, meanwhile, also fell by 19 to 916, according to Baker Hughes. Year-to-date, the oil rig count has fallen from 858 active rigs since the beginning of the year to 754, while gas rigs have fallen from 187 to 162 during that same time, according to Marketwatch and OilPrice.com.

Oil is on a wild ride along with products. Despite the turmoil, demand is holding up well. Get ready for more volatility and call for our latest trade updates.

We had a great response to our Money Show in San Francisco! Thanks to all. Makes sure you are getting my Daily Trade Levels! Read Phil’s energy report at Price Futures Group.  Twitter: @energyphilflynn | Facebook: Phil Flynn

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