For this week, we will start with a stat that would otherwise garner headlines but is not on most people's radar right now, probably due to many other events in the news. Oil is at a 4-year high at slightly more than $80 per barrel. Last time we were at this stage, in 2014, Jay Leno and David Letterman were just retiring, the “ice-bucket challenge” was dominating social media and, even with high gas prices, people were singing about being “Happy.”
Now there is a very different dynamic. One of the center points surrounds Iran, on which President Trump focused much of his United Nations fire this week. On November 6, the next phase of sanctions will kick in. While the rhetoric emanating from much of the rest of the world is in disagreement with the administration's stance on Iran, the President has given other oil customers in Europe and Asia a stark choice — either severely curtail oil purchases from Iran or lose access to the U.S. capital markets and the international payments system.
Early on in this process markets had thought that U.S. sanctions would not be too severe, and maybe Iran would be prevented from selling 500,000 barrels per day (BPD) to the oil markets. But markets are now jacking up that estimate to 1 million BPD or higher.
Interestingly, President Trump tweeted early in the week about the Organization of the Petroleum Exporting Countries (OPEC) and the trouble with high oil prices. It should be pretty obvious that trying to restrict oil supply on one hand, and then complaining about its high price on the other, is a policy at odds with itself. However, there are ways to work through this conundrum.
Extra output from friendly members of OPEC is clearly one alternative, as is the prospect of releasing supplies from the Strategic Petroleum Reserve — an emergency storage of petroleum maintained by the U.S. Department of Energy and normally saved in case a crisis occurs and the U.S. oil supply is cut off. It has, in the past, been tapped in order to help bring down prices a bit.
My View: Oil seems to be at an inflection point at these levels. Whether it will garner more attention yet remains to be seen, but you might want to keep your eye out the next time you fill up at the pump.
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