Bullish into 4th Quarter

[Rembau Times + 3]

The short term headlines has all been about weak demand, the question is whether really true or a function of equity prices.

Just took a deep look at US Fundamentals, the point to note is that RBOB crack spreads are in backwardation until Feb 2020, but this a seasonal phenomenon. Elsewhere Asian gasoline crack spreads are strong and the heavier side is trading at record spreads. Now event wise, the next week may see the end of the trade war and with that the removal of tariffs on US crude and general bullishness should be supportive of higher prices for WTI, what more with the steep premiums for sour blends may make refiners rethink the optimal configuration ( which is a changing goal post). Elsewhere the market has to absorb a reduction in Iranian , Venuzvelan and heat this right, Saudi exports. My take is that output at Abqaiq is down at least 1 m bbl because of the extensive damage to the 5 separation towers and all the spheroid structures. To add to that is the likely escalation from Iran , most likely in the form of an attack on a US asset, most likely a drone. Iran sees a once in a generation window when it can achieve its objective of dissuading US allies from hosting American naval presence , and it’s not going to let it pass. Downside risks:  reduction in US gasoline production which is not offset by production of other slates and failure of trade talks, which is unlikely since Trump needs a win to secure his base.

[cbrasher1 + 272]

2 hours ago, Rembau Times said:

Now event wise, the next week may see the end of the trade war and with that the removal of tariffs on US crude and general bullishness should be supportive of higher prices for WTI, what more with the steep premiums for sour blends may make refiners rethink the optimal configuration ( which is a changing goal post). 

Just curious why you think an end to trade war so quickly?  What do you base that idea on?  It would be great, but last I saw they were so far apart on an agreement...

[Guest]

11 hours ago, cbrasher1 said:

but last I saw they were so far apart on an agreement

Even further maybe now, certainly won't be 'next week'. New year, maybe. Doubt it. 

cough* <huawei> 

Edited October 6, 2019 by Guest

[Rembau Times + 3]

The concept of an agreement is mythical construct. China will not agree to the structural changes dictated by the US and Trump needs to secure his base. Hence that more or less sets in place the agreement : removal of tariffs, reinstatement of US farm exports and a ceasefire both sides will Trumpet as a deal. Elections are 12 months away and facing impeachment, Trump will be dumb to blow this; and I don’t think he is dumb. Btw imagine how markets will react if this is resolved next week. A big bounce and Trump kicks off his re-election campaign as the Democrats being viewed as the Axis of Evil. 

[Rembau Times + 3]

A useful concept is to consider the BATNA: Best Alternative To A Negotiated Settlement

Trump: (remember it’s not the US)

- Increase tarriffs crash the market, Dow will see last December lows really quick

- Farmers revolt 

- US economy slows

China ( aka the Chinese Communist Party)

- Economy continues to weaken

- Businesses shut down, HK revolt may be only months away from appearing in China due to displaced rural workers

Costs for both outcomes are too high so they’ll get a Trump Deal ( plenty of razzmatazz but no real bite. Wonder whether the party to sign on will be the trade representatives of both countries as opposed to their respective leaders)

[Douglas Buckland + 6,308]

30 minutes ago, Rembau Times said:

The concept of an agreement is mythical construct. China will not agree to the structural changes dictated by the US and Trump needs to secure his base. Hence that more or less sets in place the agreement : removal of tariffs, reinstatement of US farm exports and a ceasefire both sides will Trumpet as a deal. Elections are 12 months away and facing impeachment, Trump will be dumb to blow this; and I don’t think he is dumb. Btw imagine how markets will react if this is resolved next week. A big bounce and Trump kicks off his re-election campaign as the Democrats being viewed as the Axis of Evil. 

If the Chinese do not agree to ‘structural changes’ and just plan to wait out the election OR try to avoid the verification clause...there will not be any agreement. End of story!

Trump does NOT need to secure his base, it is solid. By caving in to China he would appear weak to his ‘base’, this is not going to happen.

If the Iranians do attempt to strike another US asset, then the gloves are off. I do not see that as being a smart play by the Iranians.

[BigJets + 87]

What will happen if/when the Strait of Hormuz closes? 

[Douglas Buckland + 6,308]

Price of oil jumps, drilling begins again, I go back to work!