Earth shattering politics seem to be the norm for global markets to digest as it is getting harder to shock anybody. UK Prime Minter Thresa May’s move to call for a snap election to shore up support for Brexit negations backfired, big time, leaving a hung parliament losing seats for the conservative because of the smooth-talking Jeremy Corbyn, leader of the Labour Party and of the Opposition.
Yet, the real story is how the global markets are almost unfazed. Oh, sure we saw the British pound take a fall but really it was modest reaction. We don’t see the type of risk off trading that you might expect because it seems that political upsets are almost expected these days.
Forget the pollsters, they got it wrong again. First Brexit then the election of Donald Trump and now the snap election in Britain. In all fairness, the pollsters did show the trend of falling support for May, but let’s face it, the situation in the UK, ahead of what was supposed to be Brexit negotiations, is just a big political mess. Whether May stays or goes is uncertain as she seeks to form a coalition government but I think the rest of Europe is probably enjoying the show.
OK, maybe not as much joy as the James Comey hearings. The former FBI director seemed to act like a disgruntled employee that was angry and hurt after he was fired from his job. Despite attempts by some of his questioners, the odds of an obstruction against President Trump is highly unlikely.
The revelation that it was Comey that leaked the memo of his meeting with the President after he was fired and the fact he did not say anything to the President when felt so-called pressure to drop the Michael Flynn investigation, hurt his credibility. Now he may have a reason to feel hurt but if he felt there was obstruction of justice, he should have done his job and reported it instead of writing notes in case the President lied at a future date. On top of that, the evidence that President Trump was told by Comey that he was not under investigation and there was absolutely no evidence of collusion with the Russians was very clear. The stock market should start a renewed Trump rally as the President is not going anywhere and the U.S. pro-growth economic agenda will hopefully get back on track. The stock market is going to start loving it! Get ready for another ride.
For crude oil, ultimately, this is friendly news. While traders continue to stay focused on the “glut,” the futures markets are starting to signal a tighter market in the second half. The back end of the futures market is encouraging oil to be bought today and saved in storage for delivery down the road as the market must expect a dramatic tightening of supply. The speed to some of the back months is as high as $1.50 a barrel.
There are also reports of someone making a big bullish bet on the long-term crude oil options. Bloomberg News reports that options to buy 10 million barrels of Brent crude for $80 a barrel in December traded Wednesday, far exceeding the next-largest contracts, according to exchange data compiled by Bloomberg. Placed in two trades, the transactions were especially large given they were to purchase crude at 66 percent above the day’s closing price. Does someone know something?
Despite recent weakness, the global rebalancing of crude is happening and it will accelerate. The contango in the futures is as a sign that the current oversupply is not going to last forever. It is a great time to use market weakness to establish or re-establish long-term bullish position. Reuters reports that Libya's 270,000-bpd Sharara oilfield has reopened after a workers' protest and should return to normal production within three days, the National Oil Corp said on Friday. We will see.
Natural gas storage hit its first and possible last triple digit injection of the year. The 106 injections came as weather in the Northeast was cool, hurting demand. The EIA says that this represents a net increase of 106 bcf from the previous week. Stocks were 332 bcf less than last year at this time and 237 bcf above the five-year average of 2,394 bcf. At 2,631 bcf, total working gas is within the five-year historical range.