Yesterday, oil prices marked their sharpest one-day decline since February, following the markets as a whole.

By 2:30 P.M. Eastern, the West Texas Intermediate (WTI) had dropped 3% for the day, while Brent was down 2.3%.

Before Monday’s drop, both WTI and Brent were in the middle of an impressive rally – WTI had been up 6.5% for the month as of Thursday, while Brent had been up an even heftier 8.6% for the same period

And when we look at oil prices for the year, both are now at the pricing ranges I had predicted for the end of June.

So a pullback was certainly in order.

Yet, that’s not what happened yesterday.

None of the factors normally associated with a profit-taking environment – a spike in U.S. production, s decline in demand, a rise in surplus stock, or a significant rise in the value of the dollar – was present.

This was not a market-driven excuse for a selloff.

This one came directly from the White House.

Trump’s Tweets Tears the Markets

The markets tanked on Monday with all indices declining over 2%.

Leading the move down was Amazon.com Inc. (AMZN), the target of a Presidential twitter storm, which was down nearly 11% since the open.

As the latest personal controversy President Donald Trump has engineered with a critic – this one with Amazon CEO (and owner of the Washington Post) Jeff Bezos – attests, these attacks have broader consequences.

Trump’s argument that Amazon is cheating the Postal Service and the U.S. Treasury out of “billions” in revenue is neither accurate or a matter susceptible to executive action.

That differentiates the issue from tariffs, where the President does have a recourse to direct action from the Oval Office.

Nonetheless, both moves have had a negative impact on markets.

Traders now have to factor in the prospect of an escalating, tariff-fueled trade war on the one hand and attacks against high-profile stocks on the other.

All coming from early morning Presidential tweets.

The impact has been accelerating volatility, widening losses in market cap, and rising investor uncertainty.

These have not been the result of market factors.

They are a direct result of the President’s decision to govern via Twitter.

And now all of this has begun to impact the oil price environment…

Crude Prices Vs. Political Antagonisms

In a normal environment, crude prices don’t respond immediately to domestic political antagonisms.

That is unless they directly impact regulations governing production or the provisions (or withholding) of subsidies and tax benefits.

The current situation is different.

The markets are now wrestling with how protracted political imbroglios will translate into downward pressure on business development, import/export expectations, consumer demand, and a wide range of purely domestic economic matters.

Yes, the tax cuts have injected some much-needed liquidity into the system.

Yet the employment picture remains uncertain. With most workers receiving a one-time bonus (if anything at all) rather than additions to salary and benefit bases, the net impact on expanding available jobs remains open.

It now seems likely that the tax largess will not result in a significant new wave of employment.

Many companies are opting to use the tax windfall to increase capital expenditures, replace equipment, improve dividends, and/or expedite stock buybacks.

Yet two results are already apparent.

First, the first two categories are one-shot events.

Some employment may be generated upstream where the capex is spent. However, by itself, it may not be sustainable or a large addition.

Second, the enticements via dividend hikes or stock buybacks have already been folded into investor anticipations.

The bump has come and gone.

This is all occurring against a backdrop of guaranteed rate hikes by the Fed…although the exact number in 2018 remains at issue.

With 10-year paper approaching and a 70-year high in the yield curve, the availability of credit for all manner of business becomes another issue.

America’s Economic “Checkup”

The genuine enhancement of tax relief and expenditure has to be translated into the fundamental standard by which American economic health is measured – consumer demand.

However, as uncertainty increases, demand remains a concern.

This is especially in light of increasing consumer prices following the moves in solar panel, steel, and aluminum tariffs.

Even if successful, these will dictate the use of higher cost U.S. metals in the production of finished products.

Then the reprisals from other countries will impact U.S. exports

China announced the initial rollout in tariff against 128 U.S. products yesterday that is going to hit certain sectors, particularly among U.S. agricultural exports, on the chin.

However, the genuine global response is yet to come.

Now, the truly unsettling aspect is this…

In aggregate economic terms, the tariff decisions are moving toward undercutting the advantages of the tax cut.

Meanwhile, Presidential personal vendettas against CEO’s like Bezos guarantee further destruction of market cap for far more companies than just Amazon.

Again, these are not problems arising from the market.

They are exogenous to it.

With each new wave, further value is eroded, and levels of angst increase.

It’s the market perception that drives what investors do.

When uncertainty increases, so does the excessive swings we have experienced lately in index performance.

At a fundamental level, oil prices reflect such perceptions.

An economy in which consumer demand, sustainable employment levels, and reasonable expectations of selling American production abroad are all becoming problematic will provide sufficient rationale to temper oil prices.

Once again, it is uncertainty that drives this train.

The short artists then attempt to take over and provide another restraint on price increases.

If in spite of all of these hurdles, crude improves anyway, it is a real statement that the pricing floor is solidifying.