Where Oil and Politics Meet

 | Sep 09, 2013 | 11:39 AM EDT
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The big story for the oil markets is obviously Syria. What happens in the next few days with President Obama's speeches and the Congressional vote will tell a lot about what will drive the short-term trajectory of the oil trade.

But where oil and politics meet is not usually a place where lifer commodity traders like to be. Analyzing the relative supply profile, looking into the demand structure, understanding where growth and decline are occurring, checking into the curve and analyzing what's happening between markets -- that's what I do and how I make my money.

But analyzing the likely actions of politicians? That's not so easy.

Yet that's where we are. The president, I believe, was forced into a corner by previous "red line" talk about chemical weapons use in Syria. My thoughts were that he felt obligated to demand military action once that line had been crossed, but his request for approval from Congress was his easiest path to avoid such an action. After all, if you come to Congress with little or no support from the international community and not much from your own political party, and when you get the "No" vote that you expected, you can claim that you wanted to take action but couldn't go against the will of Congress or against the Constitution.

But with the full-court press the president is making -- pleading with foreign leaders at the G20 meeting and elsewhere, military plans drawn up by the Pentagon at the president's direction, a slew of meetings with Congressional leaders, and a nationwide address planned for Tuesday -- I'm no longer sure that he will abide by what I am convinced will be a negative final tally from the House of Representatives, even if it passes in the Senate.

The talk now is that the president could take the approval of the Senate and withdraw the request from the rest of Congress, or decide to strike without the approval of either House.

Again, I have been of the belief that the president was looking for an honorable way out of his promise, not a questionable way in.

As for oil, I believe that Syria, as a long-term factor, has not been significant for the price action and that this third-quarter rally above $110 per barrel was as much about the geopolitical supply risk from Libya and Iraq as it was about the likelihood of military strikes against Syria. I've also felt that the equity markets had likely accumulated all of the gains for 2013 and most of the remaining risks remained to the downside. That has made oil a spectacular capital-diversifying play and has continued to drive the oil trade higher.

So the trade to me clearly remains on the domestic exploration and production of crude and liquid-rich players, with Syria as a concocted timing vehicle. What you are looking for is a sharp decline in oil prices, caused either by Congress voting no on a Syria resolution, or the perception that the president will not begin activity without getting both Houses on board. That would cause a temporary weakness in some of the stocks I continue to highlight, including Anadarko (APC), EOG Resources (EOG) and Cimarex (XEC). And it would create an opportunity because the biggest surprise to oil won't be the action or non-action of Congress or the president; it will be the continued rise in the price of oil price, even without action against Syria.

And that's what this lifer commodity trader is predicting, outside of the politics.

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