Oil on the Rebound?

Macro Perspectives: Fri 18 Sept 2020

Yesterday, we talked about oil, as one of the most beaten down markets in a world where asset prices are resetting higher (by the design of policymakers).

Oil was up 5% on Wednesday. The biggest mover of the day among global stock markets, currencies and commodities, yesterday, it was up another 2%. Crude oil is up 11% since Tuesday.

What happened on Tuesday? Trump hosted the leaders of Bahrain, UAE and Israel to sign a peace treaty.

Does the Middle East peace deal represent a catalyst for oil? It may, to the extent that it may have increased the probability of the survival of the fossil fuels industry. There is clearly a global sentiment shift against fossil fuels - it's a fight the climate change activists have been winning. They are all in (activists, investors Et al) but standing in the way has been Trump.

Climate change activists believe that climate change is an existential threat to the world and the financial backing is nearly unlimited. A group called Climate Action 100+ has the most powerful investors in the world (representing $32 trillion in assets under management), who have been dictating how major energy companies are deploying capital on new projects - forcing the pivot to climate responsible initiatives. We then also  have major global government entities/cooperatives behind the activist movement, feeding the effort with cash and subsidies.

NB: because they view Trump as a climate change denier, they have explicitly said he (Trump) is an existential threat to the world. With that, you might imagine how desperately they want him to "disappear" (in the words of George Soros).

Now, what does this have to do with the Middle East deal?

This deal may have increased the probability of a second term for Trump - that's positive for the outlook & the survival of the fossil fuels industry. Whilst it may also increase the global support (with the Middle East) for Trump's stand against China.