The Energy Report 03/29/19

Tweet Can’t Stop Oil’s Best Quarter In 10 years

A Presidential oil tweet isn’t quite what it used to be. Oh sure, oil did break a bit after the U.S. GDP revised down to 2.2% in the fourth quarter, but 2018 was best year for our economy since 2015. After stocks started to realize that and come back, oil started to follow until the President reached for his phone. President Trump tweeted that “Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!” shaking out some oil and gas traders, yet by the end of the day it shook the tweet off as the market started to focus on the increasing risk to supply.

Tougher sanctions on Venezuela, and the growing pressure from inside his administration to put more pressure on Iran and get their oil exports to zero, along with a sense that we will see positive developments out of the U.S. – China trade talks has the market back on an upward track.

Oil gained late after Reuters reported that “The United States has instructed oil trading houses and refiners around the world to further cut dealings with Venezuela or face sanctions themselves, even if the trades are not prohibited by published U.S. sanctions, three sources familiar with the matter said.”

The Trump Administration is making it clear that if you try to profit on Venezuelan oil and prop up Maduro, there will be consequences. Reuters said that “The U.S. State department has called up foreign firms to say that the scope of the sanctions is wider.” The sources said that the “State Department made clear that any kind of oil trade, whether it be direct, indirect or barter, would be considered a breach.”

As far as Iran sanctions; Brian Hook, the State Department’s special representative for Iran, told VOA that “The policy of the United States is that we are not looking to grant any new oil waivers. We did have to grant eight oil waivers in order to avoid shocking the global oil markets and causing a dramatic increase in the price of oil. We have taken off roughly 1½ million barrels of Iranian crude, and we have avoided a price increase in oil. And that’s not an accident. We’ve done it very well and very carefully. 2019 is going to be a much better market for global oil supply, and the forecasters say that there will be more supply than demand.”

Mr. Hook is probably listening to the wrong forecasters on that last point. Yet how can the market believe him when he suggests that after the waivers expire May 2, there will be no more waivers. Fool me once shame on you, fool me twice shame on, well shame on somebody.

In fact, one of the reasons that oil is having its best quarter in 10 years is because it had crashed late last year after President Trump reversed course and granted waivers to buyers of Iranian crude. While he thought he was trying to mess with OPEC, the run on the bank mentality in the oil market brought down the overall stock market with it. The oil sell-off created a panic as the sharp price drop raised fears that perhaps something was wrong with the overall economy, that oil crashing might be signaling bad things. In fact, that selloff late last year was probably one of the main reasons we had to downgrade the GDP.

So, the message is clear, you can grant waivers on oil or not grant waivers, just don’t mislead the market as it could damage the overall economy. Also remember that the U.S. is the world’s biggest energy producer, so causing price crashes are not helpful. Oil products took a hit as well on fears that demand may have weakened a bit. Yet the drop-in demand is most likely a temporary blip. The drop-in refinery runs were probably a combination of refinery glitches and weather-related slowdowns. More than likely, that will mean that prices on the futures and at the pump will start to rise again.

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Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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