The dog days of August that have set in on the moves in the commodities have been exaggerated. While crude oil holds the 200-day moving average, after a major seasonal sell-off, the concerns about a serious demand slowdown are most likely overblown. Turkey, of course, is a major oil producer and Consumer. NOT! The fears of contagion, steaming from the stepped upped pressure from the Trump Administration, has been overdone. We are in the dog days, and oil bears have begun licking their chops, mistaking seasonal weakness for a major bear turn in the market.
Fears of a full-blown trade war between the world’s two biggest economies are set to intensify after the Trump Administration announced another round of tariffs on Chinese products on Tuesday. In a move that is likely to cause the further deterioration of US-China trade relations, the United States will begin imposing 25% tariffs on $16 billion of Chinese imports starting from Aug. 23. With Beijing expected to fight back by targeting $16 billion worth of U.S. goods with equal tariffs, the US-China trade saga could get even messier.
Escalating trade tensions between the U.S. and China remain the financial markets’ hottest topic. President Donald Trump seems to be celebrating winning the first battle of this war, saying that “tariffs are working big time” in a Tweet on Sunday. He says that they will enable the U.S. to start reducing the large amount of debt accumulated throughout President Barack Obama’s administration.
Snapback after a whack, give a dog a bone, this old man comes rolling home. It looked doomy and gloomy in crude oil for a while as trade war fears and reports of increases in OPEC and Russian oil production weighed on market psyche. Yet, after a report about another drop in supply in the Cushing, Okla., delivery point, and talk that U.S. oil production is not what it was reported to be, the mood quickly shifted.
The U.S. petroleum markets were just trying to adjust to a surprise increase in U.S. crude supply, when The Wall Street Journal reported that the Trump Administration is considering more than doubling proposed tariffs on a further $200 billion worth of Chinese goods to 25%, up from an original 10% tariff that was put in place before.
Crude oil prices are back under pressure as there are reports that the United States is looking to more than double tariffs on China, as well as a shockingly bearish weekly inventory report from the American Petroleum Institute (API). Out of nowhere, the API reported a 5.590 million barrel build, confounding experts and expectations as well as a big 2.890-million-barrel increase in distillate supply. Gasoline did fall by 791,00 barrels but with trade war fears keeping us on edge, today's Energy Information Administration (EIA) supply report will be more important than today's Fed announcement.
Crude prices, which were on the rise on concerns of tightening supply and growing desperations that the loss of Iranian oil supplies would not be easily replaced, may have found a ray of hope. Present Donald Trump said in a press conference at the White House with Italian Prime Minister Giuseppe Conte that he would be willing to meet Iranian President Hassan Rouhani any time "whenever they want” and without preconditions, raising hopes that perhaps an Iranian crude oil embargo might be avoided.
Farmers looking ahead to harvest should get hedged even though President Trump will use a Great Depression-era program to pay up to $12 billion to help U.S. farmers through the trade war talks. Maybe Willie Nelson should come play at the Trade talks with President Trump and President of the European Commission Jean-Claude Juncker. Any sign that Trump and Juncker can lay the groundwork for a trade deal could set oil, distillate, grains and metals on a tear.
The rhetoric is running high as President Donald Trump continues his hard line on Iran. It seems that Iran’s President Hassan Rouhani took exception to that fact that the Trump Administration wants to reduce Iran’s oil exports to zero. Rouhani said that “America should know that peace with Iran is the mother of all peace, and war with Iran is the mother of all wars. You are not in a position to incite the Iranian nation against Iran’s security and interests.”
It’s looking like being a quiet end to the trading week, with the only notable economic releases coming from Canada and it being one of the less eventful days of earnings season. The Canadian inflation figures will be one interesting takeaway today, after a year in which the central bank has been actively raising interest rates, most recently this month taking the number of hikes to four.