Blame Canada
A funny thing happened on the road to Singapore. The Group of 7 joint communique was agreed to by all nations until the Prime Minister of Canada Justin Trudeau made a statement after President Donald Trump was on the plane going to try to rid the world of the North Korean regime’s nuclear weapons and said that “U.S. tariffs were kind of insulting” and he “will not be pushed around’ set off President Trump and his advisors. Trump said that Trudeau was dishonest and weak and was angry that Trudeau made the comments after the President left.
Fox News reported that there is a "special place in hell" for Canadian Prime Minister Justin Trudeau because of his decision to slam the U.S. in a post-G7 press conference, White House Director of Trade Policy Peter Navarro said on "Fox News Sunday."
"There's a special place in hell for any foreign leader that engages in bad faith diplomacy with President Donald J. Trump and then tries to stab him in the back on the way out the door," Navarro said. "And that's what bad faith Justin Trudeau did with that stunt press conference. That's what weak, dishonest Justin Trudeau did. And that comes right from Air Force One."
The Canadian Prime Minster is shocked that President Trump called him out and in Canada many are rising up to support him. Who is to blame? Should we blame the government? Or blame society? Or should we blame the images on TV? No, blame Canada, blame Canada.
In the meantime, oil is under pressure as the U.S. oil rig count surges along with the dollar that is getting support ahead of this weeks Fed meeting where the Fed is looking to raise rates. The jump in U.S. rig counts is giving the market the sense that U.S. production can cover losses of Venezuelan supply and the potential loss of Iranian supply assuming that OPEC and NON-OPEC will increase output in the second half of the year as promised.
Reports that Russia and Saudi Arabia are already rising output is pressing prices even as it properly won’t be enough to change the trend of falling global supply even as the Baker Hughes rig count increased by 1 rig to 862, its highest since March 2015 and U.S. production is at a record high of 10.8 million barrels per day (bpd), it is unclear that the upward trend can continue. Reports of labor shortages and the lack of pipeline and truck capacity will make it impossible for the upward trend of US production to stay on the same upward trajectory.
The reality is the world is still in a supply deficit situation and OPEC and Russia must fill that void to avoid a major price spike. Reuters reported that OPEC is likely to reject a request by Iran to discuss U.S. sanctions against Tehran at this month’s meeting. While prices for oil are in a complacent mode in the short term, the reality is that we are still in a cycle bull market in oil and this is the calm before the storm.
The market is already pricing in a one million barrel a day increase. That will leave them disappointed when OPEC and Non-OPEC tells them the obvious. Despite trade war fears and raising rate fear oil demand globally is near records despite some short term drops in Chinese demand. China’s May crude oil imports, that were at a record high fell but only because of refinery maintenance. May shipments were 39.05 million tons, or 9.2 million barrels per day (bpd). That compared with 9.6 million bpd in April.
Besides, U.S. demand is smoking! U.S. crude supply should fall by 3 million barrels this week with a drop of 500k at Cushing Oklahoma. Gas supply should fall by 2 million barrels and distillates by 1.5 million barrels. Hedgers, use weakness to get hedged going forward.