Update on Oil & Gas: Nov 25, 2018

In our Nov 9 Update on Oil and Gas, I reiterated the importance of the support that had just been reached.

CL just reached our next downside target of 59.47 and RB has reached our target range of 1.58-1.62. This is important support for both which, if broken, would portend much more downside.…the charts show [RB] could really benefit from tagging 1.58ish. There, it would enjoy not only red .786 Fib support, but channel line support as well. If that support doesn’t hold, there isn’t much help until the purple channel bottom at 1.48, followed by the previous low and yellow channel bottom at 1.3847.

Virtually all analysts have fixated on supply and demand, shifting geopolitical currents and OPEC’s end game. But, for many months, I have remained steadfastly focused on Trump’s primary objective: lowering gas prices to a level which would (1) favor incumbents in the midterms, and; (2) reduce inflation enough to stave off any further FOMC rate hikes.

Surprisingly, Trump substantiated my long-held theory when he took credit for having lowered oil and gas prices as discussed in Trump: “Falling oil prices…that was me”

“If you look at oil prices they’ve come down very substantially over the last couple of months,” Trump said. “That’s because of me. Because you have a monopoly called OPEC, and I don’t like that monopoly.”

That tweet barely touches on the drama has played out predictably in the background.  It began with the murder of journalist Jamal Khashoggi at the apparent direction of Saudi Crown Prince Mohammed bin Salman.  Trump and Co. adeptly leveraged the situation to get oil and gas prices down [see: Coincidences and Consequences.]

Both MBS and Trump are now being schooled by Turkish President Recep Erdoğan who is angling to use proof of MBS’ involvement to force the return of Turkish dissident and supposed coup ringleader Fethullah Gülen (and, likely, other unnamed concessions.)

The upshot of all this drama is that RB reached 1.3847 on Friday, just in time for the final BLS energy price input which will drive November’s CPI number and could conceivably make it more difficult for the Fed to follow through on its widely expected December rate hike.

This brings our gain on shorting RB on Oct 3 to 34.7% and the YTD gain to 168%.  Our short CL position has gained 33.4% since Oct 3 and 167% YTD.

Everybody wins, except of course for Khashoggi, Gülen and the dozen or so Saudi operatives who will lose their heads for having followed MBS’ orders.

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