Market Notes
July/August 2019 Issue 

Tensions are flaring in the middle east but oil prices are unusually stable, even trending downward. Since May 2 when the US ended the import waiver to Iranian oil customers there had been oil tankers attack, troop deployment to the Middle East, downing of military drones, and lots of verbal taunting. In years past, disruption in the Strait of Hormuz, military escalation, and tanker seizure would have sent oil prices to triple digits. The muted reactions are partly a testament to the conviction that hapless OPEC+ will remain committed to lower market share, and the growing confidence that shale producers will be able to make up for the shortfall should geopolitics spin out of control. Both the US and Iran have no intention of going to war but are playing a dangerous game to try to get the other party to yield.
The fear for weak demand, however, is more concerning. Despite both the Trump put and the Powell put goosing returns for stocks, bond, and gold, prolonged trade war has dimmed real growth prospects around the globe. Oil’s lack of confirmation move to the upside in the face of rising geopolitical tension and flatlining US dollar is ominous.

On another note, the talk of Fed lowering rates with stock markets near all-time high is still generating much debate. The lack of inflation despite very low employment continues to fly in the face of the Phillips Curve and confound policy making. The relentless low inflation forces central banks to keep interest rates low, thereby injecting capital into the economy to create jobs and chase measly yields. A byproduct of easy money is the proliferation of “free stuff” in the form of unlimited mobile data, free content, cheap rides and frivolous products. This heavy subsidy to consumers, combined with the three-decade long massive workforce addition from China and the hyper-efficient globalized supply chain have depressed inflation and wages, complete the virtuous cycle. At some point the cycle may turn vicious as some postulate that trade barriers may trigger. We in the investment community are guilty of calling “inflection point” when there is none, but inflation expectations can change rapidly and force central banks’ hands. It seems premature but it will be monumental when it happens.

Lastly, apart from trading and research, we provide technical advisory services for midstream transactions (past projects here). We have performed due diligence for operators, lenders, private equities, and investors by evaluating asset quality, operations, system design, capital budgeting, project feasibility etc. We can be a valuable resource to anyone needing an expert opinion on pipelines, gas plants, terminals and other midstream assets.


Jeff Lee

CTA, NFA member 499079

Kronos Management, LLC

Archive of our past letters can be found here, where your industry friends can join the mailing list.
Copyright © 2019 Kronos Management, All rights reserved.

Want to change how you receive these emails?
You can update your preferences or unsubscribe from this list.

Email Marketing Powered by Mailchimp