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Snap Back Attack. The Energy Report 06/19/19

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Just as commodity funds were getting a little too comfortable pushing the short side of oil, President Donald Trump engineered a snap back with just one little tweet. The President revived hopes for a settlement of the U.S.-China trade war tweeting that he “Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.” Crude market turned just like that, along with the help of a roaring stock market that was getting support from the fact that Mario Draghi was adding more stimulus.

And behind all the madness, the geopolitical risk factors keep rising. Fox News reports that “Iraqi officials say a rocket hit an oil-drilling site in southern Basra province, striking a camp housing energy giant Exxon Mobil and wounding three local workers, one seriously. Security official Mahdi Raykan says a Katyusha rocket landed early Wednesday in the Zubair and Rumeila oil fields camp, operated by the Iraqi Drilling company, where Exxon Mobil has tents.” This may change the game because for the first time, an attack was directly against a U.S. interest.

In a Wall Street Journal Article today, the U.S. was saying that it was not their sole responsibility to protect ships in the Persian Gulf region, like they did in the 1980 tanker wars. One reason  Air Force Gen. Paul Selva, the vice chairman of the Joint Chiefs of Staff, gave on Tuesday was “If we take this on as a U.S.-only responsibility, nations that benefit from that movement of oil through the Strait of Hormuz and the Persian Gulf are bearing little or no responsibility for the actual economic benefit that they gain,” he said. Yet now with a report that Exxon Mobil camp was hit, that may change.

It may also increase the odds that the U.S. military will strike back at Iran; if it is proven that Iran was responsible. It seems like Iran wants to keep kicking the bear and may want a fight. Their threat to enrich more uranium is going to lose more of their allies and Iran is maybe backing itself into a corner. The U.S. says they want Iran back at the negotiation table, Iran looks like it wants a war.    

Then you have OPEC. OPEC is looking to try to secure a date for its next meeting. Reuters is reporting that OPEC has again proposed to move the date of its next meeting, now suggesting July 1-2, two sources familiar with the matter said, as Saudi Arabia, Iran and non-OPEC Russia are struggling to agree to a compromise. Previous proposals included dates for a meeting of the Organization of the Petroleum Exporting Countries followed by a meeting with non-OPEC allies on June 25-26 and July 11-12. Regardless of the meeting date, the market is already expecting an extension of production cuts.

The Fed meeting is also key. The Fed has signaled to the market that a rate cut is likely at the next meeting in July. The main reason is that worries of trade war uncertainty are slowing the global economy and putting the U.S. at risk. Now one might wonder if the Fed will change its mind if a U.S.-China trade deal indeed gets done. The one thing we do know is that the Fed is getting impatient with the term “patience approach.” If the Fed comes off as dovish, oil will soar as funds will have to exit.

The energy markets will also get the Energy Information Administration (EIA) supply report today. If the API is any indication, we should see a crude drawdown. The API reported that crude stocks fell 812k bbl last week, while Cushing supply increased by 519k bbl. Gasoline increased by 1.46m bbl and distillates fell by 50k bbl. The Trade will look hard at EIA adjustment numbers that have risen by a historically astronomical amount over the last 5 weeks. The EIA hopefully will soon have an explanation. It is critical to know because if those adjustments are unusable oil, it may be giving the market a false sense of supply security.

Natural gas is still in trouble as Summer takes a holiday. I guess it is only fair because everyone else takes advantage of summer. Forget about your gasoline bill, just think how much money you are saving not turning on your air conditioning. Nat gas is in trouble as demand is weak and production rising.
Phil Flynn


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About the author

Mr. Flynn is one of the world's leading energy market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.

Phil Flynn's accurate and timely forecasts have come to be in great demand by industry and media worldwide. His impressive career goes back almost three decades, gaining attention with his market calls as writer of “The Energy Report”.

He is a daily contributor to Fox Business Network where he provides daily market updates and analysis. Phil’s daily commentary is also featured in Futures Magazine, International Business Times, Inside Futures, 312 Energy, Enercast, among many others.

Phil is a lifelong resident of Illinois. He attended Daley College in Chicago before beginning his career on the trading floor of the Chicago Mercantile Exchange which eventually led him and his team to The PRICE Futures Group.

Media highlights include: The President of the United States, Bloomberg, ABC, CBS, NBC´s "Today Show" and "Nightly News with Tom Brokaw", CNBC, CNN/CNNfn, FOX´s "O´Reilly Factor", PBS´s "The Newshour with Jim Lehrer" and "Nightly Business Report", MSNBC´s "The News with Brian Williams", The Wall Street Journal, Business Week, Investor´s Business Daily, The New York Times, The Los Angeles Times, Chicago Tribune, Associated Press, The Toronto Globe & Mail, Houston Chronicle, Futures Magazine, Inside Futures, and National Public Radio.

Contact Phil Flynn: (800) 769-7021 or at

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