With all of the excitement with a rising stock market and record prices on gold and explosive moves in silver, oil seems to be a bit left out. Yet the same forces that are driving those other markets such as record stimulus and low-interest rates, will also support oil. Oh sure, oil has Covid fears, but there are signs that in some states things are getting better, and there are hopes that we may soon get a vaccine. Yet the numbers on the economic recovery are incredible.

In fact, according to the Wall Street Journal, “stocks, bonds, and commodities are heading for their strongest simultaneous four-month rise on record, highlighting the breadth of the market recovery during the 2020 economic slowdown. Through Thursday, the S&P 500 and S&P GSCI commodities index were each up more than 25% since the end of March, while the Bloomberg Barclays U.S. Aggregate Bond Index added more than 3% in that span. If the gains hold during the final week of July, this would be the first time that the gauges all rose that much in a four-month period, according to a Dow Jones Market Data analysis going back to 1976.”

This incredible concurrence of events shows that the economic response from the U.S. central bank and congress is working and helping the economy recover. There are reports that  Senate Majority Leader Mitch McConnell will release a $1 trillion pandemic relief proposal today and, if passed, will support recent market moves. It should also be another reason to buy oil as it may be the cheap alternative to chasing gold and silver.

Oil is also getting support from some geo-political risk. The Wall Street Journal reports that military contractors linked to the Kremlin have seized control of two of Libya’s most extensive oil facilities in recent weeks, heightening tensions between Russia and the U.S. over Moscow’s growing footprint in the turbulent North African nation. Since June, armed fighters from the Wagner Group, a Russian firm with ties to the Russian government, have moved into secure Libya’s largest oil field and its most crucial oil-exporting port, Es Sider. The advance has helped Libyan warlord Khalifa Haftar maintain a blockade of the country’s petroleum exports in defiance of U.S. pressure to restart them, according to Libyan and Western officials.

Moscow’s moves show how Libya has become a key front in a struggle between the U.S. and Russia for influence in the Middle East and access to strategic assets. The two nations have also locked horns in Syria, where Russian and American troops patrolling near oil fields in eastern Deir Ezzor province have engaged in roadside confrontations. Stay tuned and read the piece in the Journal.

We like buying the breaks today. We look for a slight bump in gasoline and diesel demand, and that should support prices.

Natural gas prices are in trouble as the heatwave could break. Look to buy puts.
Thanks,
Phil Flynn

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