Trump, China and OPEC.2 Dec 2018 09:16
So Trump suspends increasing tariffs from 10% to 25% in January for 90 days, so negotiations can begin. Trump is already making noises about getting a great deal and the face saving can begin. Bit like NAFTA and the USMCA, no real changes but Trump can claim a great new deal. Interestingly Jerome Powell removed Trump's main excuse for the stock market going down, by changing his take on interest rates to being "near neutral" during the week. Pressure now on Trump to settle with China.
FWIW my view is that SA are now to a large extent in the clear to decrease production along with fellow OPEC members and Russia. I think SA are going to have to take the brunt of it though but are left with little choice as any lower then where we are now starts to really hurt their economy, strategic plans and undoes all the good work built up over the last two years in only two short months.
The reason I say they are to a great degree in the clear and not beholden to Trump as much as some people think is as follows.
1) The Khashoggi incident is old news and Trump has already publicly let MSB off the hook and gone against the CIA's take on how involved MSB was. Nobody really wants to start sanctioning SA and this will get swept under the carpet once the G20 has been and gone and Macron and the like can be seen to have given him the cold shoulder.
2) The mid-term elections have been and gone. That was when the price of gas mattered most to Trump and OPEC+ responded to his request, reduced output and got the price of gas down below the all important $3 level for the voters.
It's not an inflation issue as some have implied, it's all about the lower paid US citizen spending a much larger percentage of their earnings on gas and these are typically your Trump voter base.
3) Oil (WTi) has already decreased in price from the heady days of $77 to under $50 and whilst Trump would obviously like it lower, it's already way lower than I suspect he could have dreamed of in such a short space of time and probably lower than he thought it would ever go as well. At the end of the day, I don't think he wants to totally alienate the US shale industry either. My point being, as long as gas is under $3 Trump is happy.
4) SA just signed a $15B arms deal with Lockheed Martin to ease things relations a bit. Minor but it all helps.
5) Lastly, don't forget that Trump has just stitched them all up big time by saying Iranian experts would be taken down to zero by the start of November and then come the November 4th deadline, he announces waivers to all of Iran's major buyers. Not just a few of them but all of them and suddenly the market is awash with crude.
To put some figures on it, I'd be surprised if we don't get at least a 1 million barrel cut, as anything less will not placate the market and I think it might take more than that to reverse the trend rather than put a floor under it. Ignore the Russian bluster about, it's all just pre Vienna negotiating.
GLA.
Sign In
Follow the stocks
