March 9, 2018 • Reprints
Apparently, President Donald Trump knows what a dictator wants. They want to be treated rough. Instead of being coddled and respected, they want to make sure that the guy they are dealing with is as tough as he is, and only then can you gain his respect, or maybe his fear. Instead of starting a nuclear war, President Trump’s tough talk and harsh sanctions has brought Kim Jong-un to the negotiating table. North Korea has agreed to all of the U.S. demands, including stopping nuclear missile tests. This has also set the stage for talks of the denuclearization of the entire North Korean peninsula while the U.S. keeps all economic sanctions in place.
While we can be under no illusions that this could be North Korea’s ploy to gain more time, it is very possible that North Korea did not want to continue to rattle President Trump’s cage and enter a war it knows it could never win. President Trump’s critics, of course, are shocked over this development, but they should not be. Remember, President Ronald Reagan was widely criticized for calling the Soviet Union, the “evil empire. Instead of starting a war it led to an era of peace and lowered the risk of nuclear war for a generation that used to have to hide under their desks for nuclear drills. One would be wise to remember President Reagan’s policy of “trust, but verify.” Yet. with North Korea, it should be, “don’t trust, and verify.”
Crude oil bears got an early Easter gift from The Strategic Petroleum Reserve (SPR) and the Department of Energy (DOE). While the oil trade was starting to worry about plunging oil supply in Cushing, Okla., and the very real possibility that some oil refineries would run short on supply after refinery maintenance season, the DOE came to the rescue of oil bears. The DOE announced the sale of seven million barrels of oil from the Strategic Petroleum Reserve from three strategic reserve sites.
While the move is bearish in the short term, it is bullish for the long term. If refiners feel the need to go to the bullpen and buy oil from the SPR this early, it is a clear sign of oil market tightness. At this time the SPR is only authorized to sell 18 million more barrels of oil which is less than one day’s U.S. supply needs. So, refiners may be able to buy an extra day of supply, but it does not change the fact that oil refiners are facing the tightest oil supply situation we have seen in years. While it is possible that the government may authorize more oil sales at some point they will have to remember that the SPR as Senator Lisa Murkowski (R-Alaska) has said is not a ‘piggy bank” to pay for other initiatives. It is there for our national security.
Natural gas is riding the winter wave, but I promise spring is coming! OK, I am not sure when exactly, but I did see my shadow this morning. The EIA reported that working gas in storage fell to 57 bcf to 1.625 Bcf as of Friday, March 2, 2018, according to EIA estimates. That put stocks 680 Bcf less than last year at this time and 300 Bcf below the five-year average of 1.925 Bcf. At 1.625 Bcf, total working gas is within the five-year historical range. Yet despite this, natural gas production is flourishing. U.S. dry gas production hit a record 88.2 bcf a day. That is up from 80.4 a year ago. So, if we ever see spring weather than gas will fall harder than a springtime shower.
Tariffs? What tariffs? The feared tariffs on aluminum and steel imports looked less like sanctions and more like “Let’s Make a Deal,” with President Donald Trump playing Monty Hall. First, Mexico and Canada are exempt, and the White House say they are open to more exemptions if the country wants to call and cut a deal. Or you can trade for a steel tariff or intellectual right tariff. The tariffs will take effect in 15 days, unless you want to trade for the box where lovely Carol Merrill is standing.