What Trump’s Iran Decision Tells Us About Oil Markets

There is only one oil story worth concentrating on this week, and the market's reaction to it tells us so much about our oil positions that it deserves to be the only topic of discussion for this column:

President Trump has decided to pull out of the Iran nuclear deal, a move he threatened to make throughout his presidential campaign.

The first point I want to concentrate on is how predictable this move was from President Trump.

If nothing else, our President has had one lone but consistent aim; to try faithfully to follow through on his campaign promises, no matter how outrageous or impossible their implications might be. Many of us thought that much of the rhetoric that Trump used during the campaign would be forgotten under the weight of responsibility that comes with being President, but much to the contrary, he has pursued even the most impractical proposals he laid out on the campaign trail.

He has so far tried and failed - three times - to initiate a Muslim ban.

He's also tried several avenues to gain funding for his promised border wall with Mexico, also without success.

With more success, he scuttled the Paris Accord and the Trans-Pacific Partnership, while putting parts of the NAFTA agreement on life support.

He's delivered on his tax cut promise, even if it was far more business oriented than what he probably envisioned, and he has significantly cut into environmental regulations and restrictive banking regulations.

So, when it came to re-certifying the Iran nuclear deal or dropping it, especially when one considers the stance of his new National Security Adviser John Bolton, it was an easy call to see Trump detonating the deal on Tuesday.

But here's what's more important for our stocks.

This fairly predictable move caused an unexpectedly enormous rise in oil stocks, well outperforming the underlying oil price. And it seems to me that this huge positive move in stocks from this fairly obvious political decision from the President is an indicator of two very, very important things for our energy investments:

First, I believe that it proves that Wall Street and most of the big analysts - as well as the big fund investors - have completely misread the signs for oil and energy over the last year and were completely out of position for this move. They are underrepresented in their portfolios in the energy sector and will now be scrambling for the next - well, probably several quarters - to rebalance towards the outperforming energy sector.

Second, the positive move in oil stocks seems to be only an appetizer for the main course of out-performance in oil and oil stocks. Even now, with oil prices above $70 a barrel, great energy companies are still trading well below their historic levels when oil was last priced in the 70's back in 2014. There is so much unrealized potential today in energy shares compared to where oil is trading right now - and given that I believe that the oil price is destined to again clear $100 a barrel by the end of 2019, this still signifies a generational opportunity in oil stocks over the next year and a half.

What I'm saying is that I feel we've finally got the markets exactly where we want them; scrambling to catch up to our bullish oil thesis we initiated many months ago.

Sure, there could be technical downdrafts here - nothing goes in one direction. But if there's one thing the Trump/Iran decision told this hardened oil trader this week, it's that every down move in oil that you see, until further notice, is just another opportunity to buy.