Oil took the wild spike higher last week on the drone and cruise missile attack on the Saudi Arabia oil facilities and fields. After the smoke cleared, West Texas Intermediate Crude oil was up +6% on the week. Brent oil popped +5% last week. 5% of the world's oil supply was knocked off line by the attack, although there is lots of oil available in storage, but the Saudi's already restored over one-half the losses. Saudi Arabia says all production will be restored by the end of the month which is next Monday but this is already being walked back. Officials say it may take a few months to be fully back on line which is more realistic. The columns are special equipment that take a few weeks to fabricate.
President Trump flinches again. He was all bluster a few days ago touting that the United States is "locked and loaded" puffing out his chest like a teenage boy at the high school dance. The president greatly toned-down that bravado message now saying he is pursuing diplomacy. Comically, he tries to convince everyone that his backing down and providing restraint proves that he is a strong leader. That's even a stretch for the showman King Donny.
Trump balked at taking military action after a drone attacked a US ship. He backed away from taking action as oil tankers transport bootleg oil across the Mediterranean. Now he balks at taking military action against Iran for the Saudi oil facility attacks. The president is deploying more US troops and equipment to the region to support Saudi Arabia.
Foreign leaders know that Trump is all bark and no bite. Humorously, he ridiculed Emperor Obama for drawing a red line with Syria that Assad immediately stepped over. King Trump is going down the same road. Trump wants reelected and the timing of a war will sink his desire for four more years. The president likely wants to maintain status quo through the November 2020 election and then he would be free to do whatever he wants from 2020 to 2024. Trump campaigned on getting America out of wars not into them so he is in a tricky spot right now.
The Saudi's are saying unequivocally that Iran was involved in the attacks. That tells you that a counter strike is coming. Trump is playing it coy but no doubt behind the scenes he, the State and Defense Departments are all involved in the planning. Politically, Trump can live with a surgical strike against Iran. He imposed more tariffs but that only gets you so far. Trump calls them the "highest level sanctions." Of course he does. Next week he will announce the highest-highest level sanctions.
Trump does not want an all-out war but he may approve a surgical counter strike simply to gain back face. Trump talks loudly and carries a tiny stick, in his tiny hands, rather than what you want to be which is a man that talks softly but carries a big stick. Trump will make a political calculation that a small strike against Iran will prove he is a big man that will answer any aggression in the region and at the same time should not lead to lasting conflict that would hurt his reelection campaign.
Time will tell how much involvement the US will have on any counter strike. The new moon peaks on Saturday, the darkest time of the month, so no doubt an operation will likely occur between Wednesday the 25th and Wednesday the 2nd. The US has superior night vision technology and will want to strike in pitch black darkness. So we will not have to wait long to see what happens, and what happens with oil prices.
China has been stockpiling oil like madmen. They are probably filling up milk jugs, old soda bottles, buckets, anything they can get their hands on. There are many moving parts (supply and demand) in the oil markets nowadays making forecasting extremely difficult. Inventories were a big build last week hinting that global oil demand is falling verifying an economic slowdown. The threat of a global recession on the come drags prices lower while the threat of Middle East war and more drone strikes on oil facilities send prices higher.
A major worry now is drone strikes on any target. Perhaps drone wars are in all our futures. Maybe that is why some science fiction authors envision future generations living underground; drones may rule the Earth. An ugly world is ahead if drones, strapped with explosives, begin flying the once-friendly skies.
The price breakout to the upside rockets to 63 then back tracks to catch its breath. The vertical side of the triangle is about 11 or 12 handles so the breakout at 56 targets 67-68. Note the breakdown from the triangle in early August. You often see this pattern with sideways triangles. About one-half to two-thirds of the way through the triangle price will breakout, or down in this case, but typically it is a fake-out move, and price returns inside the triangle and then goes out the opposite side for the real move. As seen above, price returns inside the triangle and then explodes out the top.
The green lines show the positive divergence and oversold conditions that sent oil price higher in early August. The chart is stumbling sideways now and not giving up any hints on direction. The upper band was violated so the middle band at 56.54, and rising, is on the table and would be targeted on a pullback. Oil prices are likely in a waiting pattern until the retaliation occurs for the drone strikes. Each day forward this week the overnight sky becomes darker and the march to potential war in the Middle East creeps closer. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
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