John Bolton Exits, Will Oil Fall to $20?



In a tweet on Tuesday, President Trump said that he removed John Bolton as the US NSA (national security advisor). President Trump said that he had some disagreements with Bolton.

So far, during President Trump’s 3.5 years in office, the US NSA has changed four times. John Bolton was appointed as the NSA on April 9, 2018. On August 1, in an interview with Fox Business, he expressed stronger views on Iran. Bolton called Iran the “largest state sponsor of terrorism” and a “very, very bad regime.” He probably meant that Iran is fooling the world. The country didn’t stop pursuing a nuclear bomb.

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Iran and oil prices

US sanctions on Iran have crippled its energy exports. John Bolton designed the sanctions. Considering oil prices, the fall in Iran’s oil exports reduced the global oil supply—a positive development considering the current circumstances. After the sanctions were imposed again, Iran’s oil exports fell 80%. Before the sanctions, Iran exported around 2.5 MMbpd (million barrels per day).

On a year-to-date basis, US crude oil prices have risen 26.4% due to the Iran sanctions. The ongoing sanctions helped US crude oil to hold at $50—a psychologically important level. In 2019, US crude oil active futures averaged around $57 per barrel. During this period, integrated energy stocks ExxonMobil (XOM) and Chevron (CVX) rose 5.7% and 12%. Oil prices are important for their upstream businesses.

Apart from integrated energy stocks, US crude oil prices below $60 had a negative impact on upstream stocks like Chesapeake Energy (CHK). In 2019, Chesapeake Energy’s stock prices fell 12.9%. The company operates with a production mix of around 31% in commodities linked to oil prices. Notably, lower oil prices will also impact the S&P 500 Index. Energy stocks account for around 5% of the S&P 500.

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Will oil fall to $20 after Bolton’s removal?

With Bolton’s removal, the US and Iran might resume diplomatic talks. On Tuesday, US Secretary of State Mike Pompeo said that President Trump might meet his Iranian counterpart in the UN. US-Iran talks might increase the bearish sentiments for oil. In February 2016, US crude oil prices fell to a 13-year low near $26 per barrel due to supply glut. Currently, there are enough supply and recession fears to send prices near the $20 level. President Trump doesn’t support higher oil prices. On August 31, he tweeted that his policies are behind lower gasoline prices. He said that Democrats’ “green” policies will increase gasoline prices.

In an interview with CNBC on Monday, US Deputy Secretary of Energy Dan R. Brouillette said, “We are going to produce as much energy as we can, as cleanly as we can and as affordably as we can.” He also said, “and whatever happens to the world price of oil” it doesn’t matter to them. So far in 2019, the US exported 2.82 MMbpd of oil on average compared to around 2 MMbpd in 2018.


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