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.