The time now is almost 3pm, Houston time. Looks like West Texas Intermediate is going to close around $28.5 today. CNBC reports that markets are rallying because it appears Russia and Saudi Arabia are moving towards a deal.
The question I have is, “does anyone really believe that?”. NO! Think about what has happened in the past: Arab Oil Embargo, Iranian Hostage Crisis, Iraq War 1, Iraq War 2, Katrina Hurricane fatalities in New Orleans, Real Estate Market Collapse of 2008, Saudi Arabia flooding the market with oil circa 2015, the collapse of Houston after Hurricane Harvey. In any of these events, did anyone see the US government (or any government anywhere) come rushing in with solutions that worked? They always say the same thing, “we are going to have to be patient, the recovery will be ‘painful’ “. Painful? That is easy for you to say.
Markets are natural systems of nature. Like all natural systems, they like to find equilibrium. I think the business community knows that we are not at equilibrium right now, this is a disruption – like stirring oil and water and waiting for it to separate again. This near $3 rally in WTI is a sign to me that everyone is starting to get the picture. WTI came to equilibrium around $55 before this whole COVID thing started.
This is not what I hear coming out of Washington D.C.: more stimulus and debt, rising death toll, more masks needed, “painful”, lock downs in all states, extended guideline time frame, 1 year until a vaccine is found, recurrence of the virus in Summer or Fall, etc. I do not hear a single positive thing coming out of that city.
Russia stated at the very beginning that it will not cut oil production because they believed the threat from COVID-19 was not that bad. No matter how you feel about Russia, “evil empire”, they are not stupid.
In the 1800’s, the Russian Empire conquered huge areas of Asia and incorporated many different races and cultures into a heterogeneous whole. I used to work in Kazakhstan, and what I saw was that although that is an independent nation, many of their chief business leaders are natural born Russians. I was told that if a Kazakh got the chance to go to university in Russia, he never comes back, he stays there.
I wish our government would stop being so NEGATIVE and inject some optimism into our system. They keep saying, “We are going to get through this”. Well? Come on, let’s get through this already. Looks like WTI traders are deciding to get through this because they also know what we all know too.