Russia Blames Trump

Oil is shaking off a bearish API report after the U.S. stock market pulls off one of the biggest comebacks in stock market history. This comes one day after the biggest one-day point gain in stock market history in the worst December since 1931 and oil, that was once leading the stock market lower, is now looking to stocks to find direction. Oil had a terrible quarter as did stocks, and if there is anyone to blame the Russians say that it is President Donald Trump.

Reuters reported that Russian Energy Minister Alexander Novak says that rising protectionism, and the unpredictability of the Trump Administration, had greatly contributed to global oil price volatility over the past two years. With the risk of me appearing to be colluding with a Russian, I would have to say to some extent, I agree. There is no doubt that Trump’s hardline on Iran raised oil prices inspiring Russia, among others, to raise production. Trump then granted waivers to the biggest buyers of Iranian crude that helped drive price down. That led to a lack of confidence and with the uncertainty of the  trade war, the government shutdown as well as making such a big deal about a quarter-point interest rate increase made it seem more like it was a half, did cause a lot of the market turmoil and caused a perception of an oversupplied oil market.

Yet for every major market action, there is an equal and opposite overreaction. OPEC will overreact and cut production led by Saudi Arabia, who needs $85 a barrel to meet its budget. The reality is that as far as the economy goes, things are not that bad. As far as oil demand goes it continues to be strong. As far as the so-called oversupply in oil next year with OPEC and Russian oil cuts, we will most likely be in a supply deficit. Russia’s Novak is saying that they will cut by between 3 million and 5 million tons in the first half of 2019. While Donald Trump failed to live up to his promise of zero oil exports from Iran, the Saudis may send zero exports to the U.S., making it much harder for U.S. refiners that rely on Saudi’s heavy crude.

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