President Trump’s trade spat with China has gained a lot of attention this week, but don’t forget U.S. sanctions on Iran take effect on Monday, August 6.
The measures will obviously have an impact on energy. The only trouble is no one really seems to know what it will be.
Some news reports describe it bullishly. Removing Iran from the market, they say, will reduce supplies. It will stoke tensions in a volatile part of the world and threaten to close the Strait of Hormuz, we’re told. The analysts cited in these articles also highlight declining output in once-mighty producing states like Venezuela.
But a more bearish case has also emerged in recent weeks. These experts point to growing Russian and Saudi production. (Remember, the White House has demanded our allies in Riyadh keep a lid on prices.) Some articles also suggest Beijing will buy oil from Iran to snub Trump’s trade-war pressures.
In fact, China itself may be another negative for oil because its economy seems to be slowing. This week alone, for instance, the Caixin manufacturing index dipped to an eight-month low and the services reading hit a four-month low. Internals of both surveys showed weakness forward-looking indicators like orders, new business and export demand.
Finally you have price action, with the SPDR Energy ETF (XLE) as the only major sector to show a negative return in the last month.
In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. We simply wanted to remind everyone that a big event is looming in oil in case anyone needs to make any adjustments before the weekend. Monday could be too late.