War is over if you want it to be, President Donald Trump said in his State of the Union address on Jan. 30, where he once again declared, “We have ended the war on American Energy and we have ended the war on beautiful clean coal. We are now an exporter of energy to the world, as well as stating that the era of U.S. economics surrender is over.”
These words, of course, are welcomed by those in the energy industry that really felt that they were targeted by the past Administration for trying to do their job, and it provides energy to an energy-starved economy. It was the ingenuity of the energy industry that lead to the U.S. shale revolution and really helped set the stage for a new era of energy dominance. The United States is not only one of the biggest users of energy, they are now the global hub and energy crossroads of the world. We are an emerging exporter, importer, producer and refiner. Instead of the old mantra that “we can’t drill our way to energy independence” we are now relying on grit, technology and innovation and the power of the desire to make a profit has done what many said was undoable.
Yet, the U.S. energy industry went ahead and did it anyway. That dominance, of course, has put the United States in a unique economic position that will allow our economy to grow strongly in the decades ahead and enhance the ability of U.S. businesses to compete on a global stage. Add to that Trumps tax cut and that is why we have set the stage for the strongest outlook for the U.S. economy in many years. Even with the big back to back two-day correction, is it any wonder why the U.S. economy is leading the globe on this amazing economic comeback story?
The comeback story on crude oil also stalled as the market worried about a plunging stock market and the reality that as you get into refinery maintenance season you may see crude supply start to rise. The American Petroleum Institute (API) reported a larger-than-expected 3.229-million-barrel increase in overall crude supply, but the bearishness of that build was tempered with a reported 2.383 million barrels drop in the Cushing, Okla., delivery point, which continues its record pace of withdrawals. U.S. exports slowed a bit as the export window, compared to the Brent crude, came in substantially.
What was more supportive for the overall complex was the larger than expected 4.096 million barrels drop in distillate supply that keeps that market very tight and should keep diesel fuel and jet fuel on the rise. Gasoline inventories did rise by 2.383 million barrels but that might not bring much relief at the pump as there is some specifications of gasoline that are in tight supply and the high cost of crude. The Energy Information Administration will have their say but so, too will the Fed.
It’s Fed Chair Janet Yellen’s swan song and fears about the dot plot on future rate increases will be watched by oil traders. The oil trade has been helped by a weaker dollar and the fact that the Fed can’t seem to get the inflation rate that it wants. The Fed will signal rate increases and with yields rising it may cause some fears of a rising dollar. The Wall Street Journal wrote that the two-year U.S. Treasury note yield, which rose to a nine-year high of 2.124% on Tuesday, now offers more compensation than the S&P 500 dividend yield, which was at 1.69% this week, or the Dow Jones Industrial Average’s dividend yield, at 1.97%. If the Fed comes off a little more hawkish than feared than we could see a dollar spike and a commodity and oil sell-off. More than likely the Fed will not want to rock the boat and make Janet Yellen’s going away party seem a little rocky.