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As The U.S. Achieves Energy Independence, Trump Lashes Out At OPEC (Again)

After conducting a trenchant supply/demand analysis...

Fresh from “client” meetings in Paris, the world’s foremost cross-asset strategist, Donald Trump, is back at the desk and let me tell you what, he is on it.

As U.S. stocks careened lower on Monday morning, most market commentators pointed the finger at Apple, which fell sharply on jitters about iPhone demand. While that seemed like a plausible explanation for the palpable sense of angst reverberating through Wall Street, Trump identified the “real” source of investor concern: Democrats.

Surprisingly, Apple failed to rally despite being exonerated, but I suppose it’s going to take a few hours for everyone to accept the veracity of the President’s analysis.

And he wasn’t done, because on Sunday, there was news surrounding an asset he covers especially closely: Oil.

Crude is of course mired in a bear market thanks to a number of factors including, ironically, the prospect that the trade war will dent global demand and the White House’s decision to grant Iran sanctions waivers to eight nations. Between that, and a burgeoning U.S. glut, WTI had fallen for 10 consecutive sessions through Friday.

As BofAML wrote late last week, the U.S. is now officially energy independent and that’s going to impact OPEC’s decision calculus going forward. Consider this from the bank’s Francisco Blanch:

The bigger question is how OPEC+ will factor in the US shale phenomenon this time around. After all, America used to spend 3% of GDP buying foreign energy in 2008 but it just became a net energy exporter thanks to surging domestic output. Whether measured in BTUs/oil barrels equivalent or in US dollars, we estimate that the reversal in energy balances from a deficit into a surplus likely occurred in October 2018. With oil prices falling by 20% from the highs in recent weeks, the next OPEC+ decision will have to factor in: (1) the massive 2+mn b/d YoY surge in US output and (2) the negative demand impact of the ongoing trade tensions.

EnergyInde

In light of plunging prices, OPEC+ hinted on Sunday that they may move to stanch the bleeding should it continue for another month. While the cartel and allied producers stopped short of announcing an actual change in policy, they did warn about the necessity of adopting “new strategies” going forward.

Read more

OPEC+ Ponders Cuts Amid Plunging Oil Prices, Surging Volatility

Suffice to say Donald Trump is not amused. “Hopefully, Saudi Arabia and OPEC will not be cutting oil production”, he tweeted on Monday afternoon, adding that “oil prices should be much lower based on supply!”

WTI, which was enjoying a rally following the OPEC+ meeting and indications that the Saudis would cut exports by 500k barrels in December, promptly fell back below $60.

TrumpOil

So, if you were wondering whether Trump is inclined to give up on his iron grip of the global oil market in light of the fact that he no longer needs lower prices at the pump now that the midterms are in the rearview, the answer is: “No.”

This sets up a particularly interesting dynamic ahead of expected U.S. sanctions on some Saudis in response to the Jamal Khashoggi killing.


 

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2 comments on “As The U.S. Achieves Energy Independence, Trump Lashes Out At OPEC (Again)

  1. i see BAMLs point, but specifically on the oil side the US imports 7mbd + and exports 2mbd on a good week. Seems pretty far from independant on the oil front.

  2. Exactly, a bit of “fake news” in this piece when it comes to US energy independence. Very wishful thinking when it comes to oil.

    The oil market is currently stabilizing on the same futures curve established in the August 2015 first phase down move to purge excess market supply. This time I suspect the market will remain at this level if not spike higher by Spring rather than plunge. However, US equities are toast in this market rotation move.

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