Risk level: ORANGE - High

RED: Severe (+/- 4%) ORANGE: High (+/- 2%)  YELLOW: Elevated (+/- 1%)  BLUE: Guarded (+/- ½%)

THE BOOSTER SHOT

•             If Trump gets his way, there will be no spare capacity left in the oil market

•             U.S. energy circles are expressing concern about the fallout from trade policies

•             Libya could be down by about 800,000 barrels per day by the first week of July

We find ourselves confronted with a host of issues that are driving the price of oil potentially toward $100 per barrel in July. In the United States, a Trump administration determined to define a new American trajectory is facing an international community with a growing distaste for that vision. In trade alone, that vision is now met with frustration among domestic and foreign partners alike. Abroad, a zero-policy on Iran is having ripple effects across the global oil sphere. We now have three OPEC producers facing an uncertain future at a time when the market has little spare capacity to address those collective shocks. With OPEC+ commitments short of the expected deficit, and with the U.S. energy sector facing headwinds of its own, we found ourselves somewhat optimistic with a call of a 2 percent swing in the price for Brent crude oil last week. Brent finished the week up 5.1 percent, beyond our forecast range, to finish the week at $79.23 per barrel.

Welcome to the second half.

In its monthly market forecast, the International Energy Agency said OPEC members in the Middle East could churn out another 1.1 million barrels of oil per day in short order and more volumes could emerge from Russia to offset real shortages in Venezuela and potential shortages in Iran. Even if the producers with the spare capacity respond to fill the gap, the market would still be walking a fine line in the second half of the year.

U.S. President Donald Trump on Saturday said he spoke with his counterpart in Saudi Arabia, King Salman bin Abdulaziz al-Saud, about "turmoil and d[y]sfunction in Iran and Venezuela." Riyadh, he said, has agreed to pump out as much as 2 million bpd to offset the looming deficit from those two producers.

That would only fill in the Iranian vacuum called for by the U.S. State Department by November. And if Saudi Arabia agreed to that level, it would be agreeing to release the entire spare capacity held by Saudi Aramco, leaving no room for future shocks. On Thursday, U.N. Secretary-General António Guterres expressed concern about instability in the Libyan oil belt as authority over oil exports is under threat. By Saturday, the Libyan National Oil Corp. said it would declare force majeure on the ports of Zuetina and Hariga. That would lead to a loss of about 800,000 bpd from Libya, a figure that represents nearly its entire production capacity.

And let's not forget the dysfunction in the oil market that Trump mentioned is of American design. The president has pursued a policy of unilateralism while at the same time asking for face-saving favors. It was not too puzzling then to find U.S. Energy Secretary Rick Perry calling on Russia and Saudi Arabia to open the spigot rather than boast of the geopolitical gains from the Trump administration's pursuit of energy dominance.  With a call for help on Saturday, the president has shown that dominance remains out of reach.

Which brings us to trade. Texas Gov. Greg Abbott, a Republican, said in a letter to Trump that he feared tariffs on steel and aluminum imports would "threaten future economic growth both in our state and across the country." Already pressed with a lack of takeaway capacity, more expensive steel would lead to higher costs in the U.S. energy sector, which would be something of a self-inflicted economic wound. Revised figures for first quarter GDP turned lower and, while it is closer to Fed targets, inflation is accelerating faster than it has been in years. The unintended consequences of U.S. trade policy could push the rate of inflation even higher, to the detriment of the world's leading economy. On Sunday, the government of Canada, a legacy ally, will enact trade countermeasures "until the U.S. removes its trade restriction measures."

This is not a commentary on the Trump administration. Instead, it's an observation about the consequences disengagement. Writing in Foreign Affairs in 1958, former U.S. Secretary of State Dean Acheson warned that disengagement would leave a stain on the U.S. brand. Without engagement between the United States and the rest of the world, the U.S. position would weaken and become less desirable as a result. With U.S. appeal waning, it would be left to adversaries like Russia to fill the vacuum, he said. That's telling, particularly in context of Perry's appeal to the Kremlin. Crawling back to domestic shores under a policy of "America First," Acheson wrote, could lead to the end of U.S. influence on the global stage.

"For us, there is only one disengagement possible," he wrote. "The final one, the disengagement from life, which is death."

We anticipate some cashing in on Monday as the market digests the U.S. call for foreign oil. But it likely won't last given the loss of Libyan oil, and any unilateral action from Saudi Arabia would likely frustrate OPEC allies barely a week out of Vienna. Among other factors this week is the outcome of general elections in Mexico on Sunday. Trading could be muted somewhat with the U.S. federal holiday, but attention will remain high because of Thursday's release of the latest minutes from the U.S. Federal Reserve. On Friday, we get a glimpse at U.S. employment levels for June.

An $80 hit on Brent may be the tipping point for future direction. Given the obvious supply deficits and trade fallout, we're issuing another Orange alert for the week, expecting Brent to swing by plus or minus 2 percent. Should Libya avoid force majeure, or the Saudis come through quick with more oil, the rally should cool off. It could continue, however, should traders look beyond the paper barrels and take stock of the real lack of spare capacity.

Risk level: ORANGE - High

RED: Severe (+/- 4%) ORANGE: High (+/- 2%)  YELLOW: Elevated (+/- 1%)  BLUE: Guarded (+/- ½%)

THE BOOSTER SHOT

•             Russia shoots down myth that Trump is influencing OPEC with Twitter

•             Saudi Oil Minister Khalid al-Falih warned the road ahead could be "tortuous"

•             Watch out for a Turkish premium for oil if there's a security fallout from Sunday elections

The big question marking hanging over the OPEC conference in Vienna was the influence of one Donald J.  Trump.  The president in the midst of Friday's rally in crude oil prices called for substantial increases in production in order to keep prices down. A statement from OPEC+ on Friday agreed in principle to increase production by about 1 million barrels per day starting in July. In actuality, however, the agreement only referenced a return to 100 percent compliance with the balancing act that's now put the market teetering close to a deficit. Few of the formal documents from Vienna referenced the tense political climate, but Saudi Oil Minister Khalid al-Falih's mention of a "tortuous" road ahead spoke volumes about the potential for geopolitical risk. We were more or less on par with our predictions last week as the price for Brent climbed 2.9 percent and we expect another volatile week ahead.

"As we are all aware, while the current market is strong and the long-term picture remains healthy, there could be bumps in the road ahead and the path could be tortuous," Falih said in remarks on Thursday. "This means new challenges are certain to emerge."

Those new challenges could emerge from OPEC members Venezuela and Iran, who may be unable to help offset what Falih said could be a supply deficit of as much as 1.7 million barrels per day. Relaxing compliance to 100 percent, however, means the implied return of a possible 1 million bpd.

Iranian Oil Minister Bijan Zanganeh pressed for some language about the extraordinary market impact of U.S. sanctions, which extend to Venezuela as well as to Iran. Storming out at one point, the minister returned to the microphone, however, to stress the importance of compromise solutions in order to keep confidence in OPEC high.

Was there a Trump factor behind OPEC's decision? It depends on how one gauge's influence. It's not unthinkable given the lessons learned during the Reagan administration. Oil prices in part were responsible for Reagan's tenure. Writing in 2014, the president's son, Michael, said President Reagan pitted the Saudis against the Soviet Union by flooding the market with oil.

"Lower oil prices devalued the ruble, causing the USSR to go bankrupt, which led to perestroika and Mikhail Gorbachev and the collapse of the Soviet Empire," he wrote.

But this time is different. Now Russia is the largest non-member state contributor to OPEC's production agreement. On Saturday, it was Russian Energy Minister Alexander Novak who was seated in Vienna next to Falih, the chairman of the committee tasked with monitoring the deal. For Trump, the issue isn't about containment, but about showing U.S. taxpayers he can keep their wallets open. For Russia, its seat at the OPEC table is a coup of sorts as the Kremlin now has a hand on the spigot. The United States is on pace to pass Russia as the world's largest oil producer, but pipeline constraints from the Permian shale and limitations at U.S. port facilities could impact shale's global influence. Trump's pressure on OPEC, then, could've been for domestic, not strategic, influence. This time around, more oil from Saudi Arabia does the U.S. economy a favor, rather than striking a direct blow to a U.S. adversary.

Novak, for his part, answered the Trump question on Saturday when he said the OPEC+ group does not make decisions based on the president's social media account.

"Twitter is not one of the instruments upon which we make our decisions," he said.

Next week, Novak is expected to sit down with U.S. Energy Secretary Rick Perry ahead of the World Gas Conference in Washington D.C.  Those talks will likely focus on U.S. natural gas in the market. The Trump administration said U.S. energy could be a tool to counter those countries that use oil and natural gas resources for coercion. In statements last month, U.S. Rep. Ted Poe, R-Texas, said the domestic oil and gas industry "is a force multiplier for U.S. influence around the world." That influence, however, may depend on the same infrastructure bottlenecking Permian shale, U.S. steel tariffs aside.

Looming beneath the ever-present Trump headline are elections in Turkey that could test the tenure and political direction for President Recep Tayyip Erdogan.  His main challenge is a secular political party that's pledged to reverse an authoritarian direction from Erdogan. Turkey has long seen its geographical position as an advantage in the energy sector, bridging the gap between Central Asia and Europe. That advantage has been on the strategic radar of the world's leading superpowers at least since the first World War. One of the world's biggest chokepoints for the flow of oil is in Turkish waters. If elections turn out to be destabilizing, Turkey could emerge as an under-the-radar risk premium.

Even with Friday's big spike, Brent is holding beneath the $80 per barrel threshold. Next week's financial calendar is full with indices that could influence the direction of crude oil prices. On Tuesday, we'll get a gauge of U.S. consumer confidence at a time when gasoline prices are making headline news. On Thursday, we get another look at first quarter GDP for the United States. It should be another volatile week ahead. The price for Brent might cool off on Monday as traders cash in, but there are many political and economic factors ahead. We're issuing another Orange alert for the coming week, seeing Brent moving by about 2 percent. Weak U.S. economic data and media spin on the OPEC meeting could move oil lower. If Turkey destabilizes, or the situation in Libya gets worse, expect Brent to move higher.

Risk level: ORANGE - High

RED: Severe (+/- 4%) ORANGE: High (+/- 2%)  YELLOW: Elevated (+/- 1%)  BLUE: Guarded (+/- ½%)

THE BOOSTER SHOT

•             Brent crude oil prices set to swing heavily amid OPEC guessing game

•             The trade war is on and, with trust on the line, don't assume a U.S. victory

•             China calls on its Canadian and European counterparts to help lead the global system

While U.S.-led multilateralism may be fast eroding, we expect spats along multilateral lines to lead to a volatile week in commodities. The price for Brent crude oil dropped nearly 4 percent on Friday following the exchange of trade fire by the United States and China, two of the world's leading economies. The volley, launched preemptively by the United States, came one day after IMF Director Christine Lagarde warned there are no winners in these types of war, much less those triggered by unilateral actions. The heavy loss for Brent foreshadows what is likely to be a very contentious meeting for OPEC, with ministers lining up according to geopolitical alliance. Apart from Friday, however, Brent was relatively flat in response to the flurry of guesses over what happens in Vienna next week.

The unipolar moment is over. Following the rather unpleasant G7 fallout, the U.S. government under Donald Trump may have overplayed the "alone if we have to" strategy.  Trump sees U.S. influence and his unpredictability as effective weapons, but it's predictability that builds trust. Without trust, the support for an American internationalism will erode. Alienation to this degree, as evidenced by recent trade action on China, is not good policy here. Commentary published Saturday in China's official Xinhua News Agency warned that U.S. negotiating power is waning. Appeasing the U.S. president is ineffective because it only provokes ambitions for even more asymmetry. It's time, Xinhua's commentary read, for China, Canada and the EU to defend an international community. Meanwhile, China, it said, will not negotiate with a gun to its head.

For the U.S. economy, that stance might not bode well for the administration's goal of correcting a lopsided trade balance. Alaska Gov. Bill Walker returned from a recent trade visit to China to boast of a packed schedule of meetings, but little to show for it in terms of concrete agreements. Walker's administration, as well as Trump's, sees U.S. liquefied natural gas as a means to bridge the trade gap. A China unwilling to negotiate under pressure is also unlikely to play ball on U.S. energy supplies. For oil, the U.S. Energy Administration said any extra crude from the Alaskan wilderness will have to be consumed, not in the domestic U.S. market, but in an Asian market influenced by a government in China advocating for a Beijing Consensus.  China responded to U.S. trade moves last week by saying it would impose tariffs on U.S. energy products. China is one of the largest importers of U.S. crude oil, at least it is for now.

Threats of a U.S. – Chinese trade war have already pushed broader commodities lower. With oil now on the target list, we expect to see further losses in the week ahead.

The "America First" doctrine, meanwhile, has spilled into OPEC discussions. Trump, behind the curtain of Twitter, has pressed U.S. ally Saudi Arabia, tacitly, to open the spigot. The Trump administration needs lower oil prices to support the U.S. consumer benefits of his tax overhaul. Riyadh needs to keep the Trump administration happy so Washington continues to favor things like multi-billion dollar arms deals and pressure on the kingdom's main adversary, Iran. Saudi Arabia, with Russian Energy Minister Alexander Novak in a starring role, has pledged to put more oil on the market as a buffer against the potential loss of Iran and a sanctions-handicapped Venezuela. Tehran, for its part, said Saudi Arabia is not by itself the voice of OPEC.

In Vienna next week, expect sharp divisions in opinion as member states stand firm to their side of the geopolitical aisle. The consensus of an increase in production, presumably from relaxing compliance, is somewhere between 500,000 and 1 million barrels per day, not quite enough to compensate for Iran and Venezuela.

Non-U.S. members of the Iranian nuclear deal have shown support for keeping it alive. That may be enough to embolden Tehran, sensing a shift in the geopolitical poles, to press a hard case in Vienna. Meanwhile, the trade war is upon us and it could undermine the global economic status quo. "What we are currently witnessing carries the risk of lowering the outlook for global growth and demand over the coming quarters," warned Danish investment firm Saxo Bank. Risk means volatility and negativity. Negativity breeds negativity. We expect a bumpy road this week, culminating with the OPEC show in Vienna on Friday. We're issuing an Orange alert for the week ahead, anticipating movement in Brent of about plus or minus 2 percent.

Risk level: Blue - Guarded

RED: Severe (+/- 4%) ORANGE: High (+/- 2%)  YELLOW: Elevated (+/- 1%)  BLUE: Guarded (+/- ½%)

THE BOOSTER SHOT

•             Brent crude oil prices may be in for a wild ride

•             The global pie fight over trade is getting messy, so watch for a volatile week

•             Trade concerns will spill over to geopolitical agendas, meaning risk is the name of the game

Energy ministers from Kuwait, Saudi Arabia and the United Arab Emirates, which holds the rotating presidency at OPEC, met Saturday in Kuwait City to coordinate their agenda ahead of OPEC's next regular meeting. The Kuwait summit comes roughly a week after Russia's energy minister suggested a relaxation of the OPEC+ agreement that helped pull the price of Brent from historic lows two years ago. But it was the threat of a global trade war that seemed to drive the price of oil last week. With a fast-moving news cycle, and ever-changing policies from Washington, the price of oil was highly volatile last week, shifting from a 1.5 percent loss on Monday to a 2.8 percent gain two days later. Overall, we were slightly aggressive with our Yellow alert last week, with Brent moving up only 0.46 percent on the week, instead of an anticipated 1 percent move.

We continue to see a shifting political landscape with the Trump administration putting much of its political capital behind North Korean détente. The president welcomed North Korean Vice Chairman Kim Yong Chol to the White House on Friday, saying years of hostility were coming to an end. Signaling, for now, that he would meet North Korean leader Kim Jong Un face-to-face on June 12, the president nevertheless seemed to recognize the fluidity of what could be a delicate diplomatic dance.

"We will see what we will see," he said.

The surface goal of bilateral talks is denuclearization, though given the characteristics of the players on the field, the underlying objective may be the projection of national, as well as personal, power. For Kim, a seat at the table with a sitting U.S. president means he's no longer a despot from an isolated regime, but an international leader with enough clout to meet one-on-one with the head of a world superpower. For Trump, resolving an issue that's stymied past president's with deeper political knowledge than he would confirm him, in his eyes, as the rightful prophet of a new American machine.

Constructivism is a viewpoint in international relations theory that puts power through the prism of personal and social perceptions. Last year, when Trump, the "dotard," and Kim, the "rocket man," exchanged personal insults, the price for Brent crude oil jumped 2.5 percent. With the recent shift in bilateral exchange between the two leaders, the Korean factor on price of oil has been de-risked.

Long-term, however, the role of China in Korean talks will be an important factor in a durable solution. On Saturday, U.S. Defense Secretary James Mattis said at the plenary session of the 2018 Shangri-La Dialogue that competition among nations is intensifying. Taking aim at Beijing, the secretary said Chinese ambitions in the South China Sea were contrary to the traditional belts of influence in the region. Cooperation with Beijing is nevertheless "the name of the game," he said, but China should expect vigorous competition from the United States if the situation demands it.

With U.S. Commerce Secretary Wilbur Ross in Beijing this weekend, the comments from Mattis could be indicative of the struggle ahead, not only for the Korean agenda, but for the global economy. While Ross busies himself with creating trade incentives amid renewed tariff threats, the defense secretary said the U.S. role in the region was not one of supremacy.

"To be clear, we do not ask any country to choose between the United States and China, because a friend does not demand you choose among them," he said.

The same is not true for the U.S. friendship with Europe, given Washington's full-court press on an Iranian nuclear deal that opened trade doors for European companies like French supermajor Total. On Friday, the Trump administration angered some of its strongest allies by imposing tariffs on aluminum and steel. Brent crude oil prices had lost about 0.8 percent at the height of U.S.-Chinese trade war fears in early April. As the threat leaks out of Asia, Canadian Prime Minister Justin Trudeau suggested there was lack of common sense in the White House. On Friday, the European trade commission, Cecilia Malmström, said the U.S. trade response was illegal.

"We will now trigger a dispute settlement case at the WTO, since the U.S. measures on steel and aluminum clearly go against agreed international rules," she said.

The United States after World War II steered the creation of international institutions that facilitated broad global integration and participation. The Trump administration, however, is showing a clear DIY penchant under the mantra of making America great again. As a consequence, Russia's minister for the economy, Maksim Oreshkin, suggested there may be growing appeal for formally diminishing U.S. influence at the WTO.  The consequences of Trumpian diplomacy may be zero-sum. In 1986, President Ronald Reagan used a pie-fight metaphor to describe trade disputes because they just get "messier and messier."

"The difference here is that it’s not funny. It’s tragic," he said. "Protectionism becomes destructionism. It costs jobs."

We expect a volatile couple of weeks for the price of Brent crude oil. We hold our position that Brent is still establishing a new trend line in search of a floor, but with questions marks hanging on the June 12 summit on North Korea and the June 22 meeting for OPEC, we don't expect that trend line to be flat. Bilateral trade tensions and geopolitical risk lead to uncertainty in the market. We're looking for a wild ride this coming week, but little in the way of determination. We're issuing a Blue alert, anticipating movement in Brent of about +/- a half percent.