Game On Thrones

The world is a very dangerous place and so is the oil market. President Donald Trump, in an extraordinary statement released yesterday, said that not only is the world a very dangerous place but despite accusations of murder against Crown Prince Mohamed bin Salman, he is standing with Saudi Arabia mainly because he believes in America First. Also, because he thinks that he and the Saudis helped bring down oil prices in what would be, if true,  a clear case of oil market collusion. Oops, not collusion, sorry, America First!

The President suggested in a press conference that if the U.S. broke with Saudi Arabia, oil prices would go through the roof and that he was relying on Saudi Arabia to keep oil prices low after his administration restored sanctions on Iran. The comments sent oil prices, already shaky on global economic concerns, even lower. Traders speculated that a statement of support from President Trump might cause the Saudis to go easy on an oil production cut at the next meeting.

You know why Trump is sticking by the Crown Prince, it is all about the money. The President said it had steadfast support for Saudi Arabia mainly because “the Kingdom agreed to spend and invest $450 billion in the United States. This is a record amount of money. It will create hundreds of thousands of jobs, tremendous economic development, and much additional wealth for the United States. Of the $450 billion, $110 billion will be spent on the purchase of military equipment from Boeing, Lockheed Martin, Raytheon and many other great U.S. defense contractors. If we foolishly cancel these contracts, Russia and China would be the enormous beneficiaries – and very happy to acquire all this newfound business. It would be a wonderful gift to them directly from the United States!  

As far as the murder of Mr. Jamal Khashoggi, the statement said that “we may never know all of the facts surrounding the murder of Mr. Jamal Khashoggi. In any case, our relationship is with the Kingdom of Saudi Arabia. They have been a great ally in our very important fight against Iran. The United States intends to remain a steadfast partner of Saudi Arabia to ensure the interests of our country, Israel and all other partners in the region. It is our paramount goal to fully eliminate the threat of terrorism throughout the world!”

 Maybe he did or maybe he didn’t know but what we know for sure was that the oil market was rattled. Is there a quid pro quo in place that Trump supports the Crown Prince for more oil? Or will the Crown Prince double cross the President and cut production anyway? Only fair, because the Saudi’s thought that the President double-crossed them when he granted waivers to buyers of  Iranian oil. Besides, behind all the murders and backstabbing winter is coming.

And despite talk of a slowdown, the supply numbers are turning the corner as less oil will be released from the Strategic Petroleum Reserves and refinery runs will rise. The American Petroleum Institute (API) reported bullish data with crude -1.545 Gasoline: +0.706M Distillates: -1.832M Cushing: +0.398M  the perception that oil supply will keep rising will soon be put to test. With distillate fuels way below average, you had better hope for an economic slowdown or you might run out of supply.

Natural Gas is up again because the cold winter is already here. Cold weather may draw down storage to historic lows this winter. Bundle up. We still like both puts and calls.