Is "Trade War" just overblown excuse for low oil prices?

[Jabbar + 465]

I think so.

You have probably heard the adage, "There is a reason for Everything".  Humans have an intellectual curiosity . . . we want to know. If we don't have an explanation we make one up.  OR IF WE DONT HAVE AN EXPLANATION THAT WE LIKE OR IS COUNTER TO OUR AGENDA  .  .  .  .  WE MAKE ONE UP.

BEFORE the trade war China economic growth was in decline, Germany growth was declining, Japan growth was declining . . .  manufacturing recession.  Just had to run its cycle. Could the Trade War have some affect ? Sure maybe a little.  But way overblown to take the blame for low oil prices as analysts at Investment Banks have repeated.. 

Oil traded above $100 because there was limited OPEC supply (or perceived limit) to meet the growing world demand. Now, as famous oil trader Andy Hall said earlier this year, "Oil doesn't trade on fundamentals anymore".  Do you think oil trades at $55 to $63 a barrel because of trade war or because Non-OPEC producers are increasing volume and diminishing OPEC+ power of persuasion. 

Some disparate facts that may have some commonality:

1. U.S. consumers are not paying more from tariffs because China devalued the Yuan thus leaving prices the same.

2. China's economy was trending down long before Trump mentioned Fair Trade Agreement and started discussions with China. 

3. Tariffs DO HURT CHINA . . .  but China's loss is the rest of Asia's GAIN.  U.S. companies finally realize they need to diversify their Supply Train. That supply train is moving to other Adrian countries. On recent Q3 earnings conference calls many CEOs mentioned they now realize they have to move forward to geographically deversify supply chain. The nations that wanted U.S. to sign the Asia-Pacific  Trade Agreement are much happier with their "Trade War Windfall".  Anyone that thinks these tariffs are not hurting China 10X more than U.S. are clueless. China economy is hurting. Can they hold out another year till the next election ?

 4. U.S. consumers are not being hurt by tariffs, not costing more for products.  China devalued the Yuan. Prices paid for products imported into U.S. have therefore not changed. No U.S. consumer problems. The World (other than U.S.) is in a manufacturing recession. It has bypassed the U.S.  Has Germany and Japan mfg industries also been harmed by China . 

5. Oil Trades up or declines on every trade war news item or tweet.

I contend this is  because there is nothing else to trade off of. 

If/when there is a trade deal, oil (and the stock market) will trade up strong.  My opinion oil price will settle down once market continues to see oil supply increasing and demand plateauing (Green Legislation from governments, Electric Cars/Vans/Trucks/Buses)

6.  The oil industry experts have been chanting the "Trade War Mantra" in support of OPEC ( and their denial about oil supply). Please understand that Investment Bank analyst do make money by doing Investment Banking deals, they don't get deals unless they support their agenda. Always consider the source of analysis or projections.

I again say be prepared for jump in oil prices upon trade deal.  I believe that the Traders and Hedgefunds will quickly cash out taking a nice profit. If you are long oil contracts keep your finger on the trigger ready to act.

Two last obscure notes that might foretell what is to come:

(a) An article this week mentioned that last month India, the fastest growing oil market, bought more U.S. oil and less Saudi oil.  At fist glance no big deal but when you read the reason why one has to wonder.  THE REASON WAS BECAUSE SAUDIS RAISED THEIR OIL PRICE TO INDIA AND THEY TOLD SAUDI ARABIA NO THANKS. Is this the shot heard around the world.  Is this the beginning of oil price competition ? Real price competition ? 

(b) Article on Chinese "Trigger Pricing".  OPEC controls pricing by determining delivery prices two months out.  There is always "fear" that one can get caught short supply.  This allows OPEC to prop up prices and to establish a floor and ultimately influence oil price. Additionally,  two month out oil prices can allow the manipulating prices before and up to  the contract settlement date. More control for OPEC. Trigger Pricing will diminish OPEC price influence and increase real-time price competition more so as it  becomes the standard.

 For example, if Kuwait doesn't allow Trigger Pricing buyers will go to UAE.  If UAE doesn't allow Trigger Pricing buyers will go to U.S.  . . . . or whomever.  Trigger Pricing advanced by technology will become a standard for 24 hour realtime pricing of oil purchases. China is very sharp.  China as the largest producer can force producers to accept Trigger Pricing

Will not be long before this becomes a standard beyond China.

ITS A BUYERS MARKET .  TOO MUCH OIL.

FREE MARKETS PREVAILS . . . OPEC FAILS

 

 

 

Edited November 21, 2019 by Jabbar

[Tom Kirkman + 8,860]

8 hours ago, Jabbar said:

Two last obscure notes that might foretell what is to come:

(a) An article this week mentioned that last month India, the fastest growing oil market, bought more U.S. oil and less Saudi oil.  At fast glance no big deal but when you read the reason one has to wonder.  THE REASON WAS BECAUSE SAUDIS RAISED THEIR OIL PRICE TO INDIA AND THEY TOLD SAUDI ARABIA NO THANKS. Is this the shot heard around the world.  Is this the beginning of oil price competition ? Real price competition ? 

(b) Article on Chinese "Trigger Pricing".  OPEC controls pricing by determining delivery prices two months out.  There is always "fear" that one can get caught short supply.  This allows OPEC to prop up prices and to establish a floor and ultimately influence oil price. Additionally,  two month out oil prices can allow the manipulating prices before and up to  the contract settlement date. More control for OPEC. Trigger Pricing will diminish OPEC price influence and increase real-time price competition more so as it  becomes the standard.

 For example, if Kuwait doesn't allow Trigger Pricing buyers will go to UAE.  If UAE doesn't allow Trigger Pricing buyers will go to U.S.  . . . . or whomever.  Trigger Pricing advanced by technology will become a standard for 24 hour realtime pricing and oil purchases  beyond just China.

ITS A BUYERS MARKET .  TOO MUCH OIL.

FREE MARKETS PREVAIL . . . OPEC FAILS

Good opinion piece there Jabbar.  I especially liked the last 2 points.