Over the last 24 months the U.S. economy saw some of its toughest economic challenges since the Great Recession was at its peak nearly a decade ago. After OPEC — led by Saudi Arabia — refused to cut back on oil supply, global prices took an expected nose dive. And the result was bankruptcy for hundreds of U.S. oil and gas exploration and service companies.
The bid by OPEC was explicitly to put a stop to the American ‘shale explosion’ which was taking massive market share from Persian Gulf producers and put it in the hands of U.S. producers. It was one of the largest shifts in commodities markets in history, and the Sauds put a swift end to it.
But, as Americans have proven time and again, we came back even stronger after those producers who weathered the storm rebounded with a renewed fiscal discipline that has made them more competitive than ever before. And competition coupled with deep national deficits by OPEC nations has the U.S. poised to come roaring back.
I’ve predicted in recent weeks that the price of Brent crude, the benchmark for oil commodity prices, will hit $65 per barrel at some this Spring, if not before. But predictions like this always have a caveat, and this caveat has a name: Donald Trump.
As has become the new modus operandi, the world hangs on every word and tweet issued forth from the Trump White House, and the U.S. economy is no exception. As I pointed out in a recent post, the Dow’s new record of 20,000 was hit purely out of emotional speculation about Trump’s intention to rebuild American competitiveness by balancing trade agreements and restructuring tax policies. But the key point is that the path from here to 30,000 will be filled with all sorts of unpredictable events, both up and down, in the next 24 months.
That said, a recent Trump pronouncement reveals a hint as to what may happen to the global oil market. But I’ll sum that hint up in a word: volatility.
In an interview with ABC’s David Muir just over two weeks ago, President Trump explained that the problem with ISIS and its continued terrorist incursions around the world is that their operations are heavily financed — financed by oil. Among the geopolitical stratagem employed by the heads of ISIS is the capture and control of strategic oil fields around the Middle East. And it has been the continued production and sale of oil from these fields that has bankrolled ISIS to the tune of hundreds of millions.
In his ABC interview, Trump quipped, “We should have kept the oil when we got out. And you know, it’s very interesting. Had we taken the oil, you wouldn’t have ISIS, because they fuel themselves with the oil. That’s where they got the money. We should have taken the oil. You wouldn’t have ISIS if we took the oil.”
It doesn’t take a political genius to figure out that that comment very likely was a Freudian tell of the strategic cards the president is holding. Keep in mind this was less than a week after his inauguration during which his fast-paced administration was pondering and acting on his most important agenda items.
That revelation adds fuel to the reality that Trump has been very aggressive in his rhetoric about destroying ISIS and controlling the threat of terrorism in the U.S. and against U.S. foreign interests. So what does all this have to do with the oil market?
It’s simple. Irrespective of actual supply and demand of crude oil, history shows us that any time there is military unrest or outright conflict in and around vital oil and gas infrastructure — particularly in the Middle East — investors get spooked. And when investors get spooked, they act…most often irrationally and erratically.
And there’s nothing more advantageous to the unemotional, rational investor than opportunities created when spooked investors start buying and selling out of fear for the future.
If you’re old enough to remember the Iran hostage crisis and the resultant lines at the gas pumps, you know what I’m referring to. The world is much more unstable than it was then, and global politics is even more unpredictable. Should the Trump administration take decisive action against ISIS in the Middle East, it won’t be unilateral. It will be a coalition. But that coalition will prompt action from Russia on behalf of its client-state Iran and from Turkey and Saudi Arabia.
What will that picture look like? Nobody knows. But what I can tell you with certainty is that oil prices will move, and they will move in a big way. So while my overall outlook is very bullish on Brent crude regaining much of its former glory, it won’t be without significant play over the next six to eight months.
Be on the lookout for future updates as I continue to watch these developments and my global sources very closely.
Do you know how to profit on such opportunities? Do you know how to make money as markets rise & fall? The coming volatility should offer terrific opportunities to grab quick profits as select stocks move bullishly & bearishly with swings in the price of crude. Based here in Oklahoma, I am so close to this particular situation that I can practically smell those opportunities.
If you need a refresher on how to make money when stocks rise & fall, let me know. I’ve been getting email from many readers showing interest in that and other topics and welcome all such comments, questions & requests. As I get a sense of what you would like to see, I can work it into future columns. So what would YOU like to see… or learn… or ask? Email me at: Mike@MikeGaliga.com