Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
You can’t beat the impact of a Presidential tweet. Forget missiles flying in North Korea or missiles flying from terror groups into Israel. It’s all about the tweet. Oil prices plummeted after President Donald Trump, impatient with the pace of the U.S. China trade talks, tweeted “for 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billion Dollars.” The tweet sent shock waves around global markets and put a hit on oil that was already wobbly after last week’s massive oil inventory build.
Yet despite that tweet, trade talks may continue. Reuters reports that “China’s foreign ministry said on Monday a Chinese delegation is preparing to go to United States for trade talks, even, after U.S. President Donald Trump said he would raise tariffs on $200 billion worth of Chinese goods this week and target hundreds of billions more soon. Ministry spokesman Geng Shuang, speaking at a regular news briefing, did not say if Vice Premier Liu He, who is China’s lead official in trade negotiations with the United States, would be part of the delegation.”
For oil, the potential for a trade deal would be wildly bullish. A trade snag would potentially slow the Chinese economy and hurt oil demand down the road. Of course, at that point China would more than likely stimulate their economy and oil demand would pop back again. U.S. demand will be strong. The U.S. unemployment report was a blockbuster and it is probably another reason President Trump feels like he can play hard ball with the Chinese.
MarketWatch reported that “the U.S. created 263,000 new jobs in April to help drive the unemployment rate down to a 49-year low, the latest cue pointing to a rebound in the economy after a slow start in the new year. The increase in hiring was concentrated at white-collar businesses, construction and health care. The only sector to suffer a big drawback was retail, whose employment fell for the third straight month. The increase in new jobs easily topped the 213,000 forecasts of economists surveyed by MarketWatch. The unemployment rate, meanwhile, slipped to 3.6% from 3.8% in March, marking the lowest level since December 1969, the Labor Department said. The decline in April stemmed from nearly a half-million workers dropping out of the labor force, but by any measure, layoffs and unemployment are scraping a 50-year low.
It’s the art of the deal or perhaps the art of the tweet. Trump tweeted that oil prices were too high, and they came down again. Too bad he can’t do that for gasoline prices in California. California’s high gas prices are the main factor in the rising national average cost of a gallon of gas. California’s average price of $4.096 went up 44 cents from a month ago and 46 cents from a year ago, according to AAA data.
They also ignored a rash of geopolitical events that normally would have moved oil the other way. There were reports that over 700 rockets were fired at Israel from the Gaza Strip since the security situation escalated over the weekend. Reports show that the Iron Dome intercepted 173 rockets. The Jerusalem Post suggested that Iran was behind the attacks.
The U.S. has told Baghdad that it would extend waivers on Iraq’s continued trade with Iran only if the Arab state signs a deal with the American energy company, Exxon Mobil, Dan Graber reported.
Short term oil is well supplied but that may change. Technically we could test around $57 but then should see a solid rebound.
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