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.