The Trump administration is cracking down on Venezuela and laying down threats of the toughest sanctions Iran has ever seen, adding to the risk premium for oil while there are signs that U.S. and global supplies are tightening. Genscape reported another 765,826 drawdowns in supply. While some are distressed with the Trump administration hard line on countries, it appears to be bearing fruit with China. Just one day after the U.S. and China declared a truce on the trade war, China lowered their quota on auto imports, reducing its tariff to 15% from 25%. That will add to the economic optimism giving hope for demand for industrial metals as well as demand prospects for oil.

Venezuelan oil production will take another hit as capital in the country dries up. OPEC is now suggesting that they may step up to the plate to replace their oil, but they are not in a hurry to do so. Reuters reports that Venezuela on Monday said new U.S. sanctions restricting its ability to liquidate state assets and debt in the United States were “illegal measures.” “(The sanctions) are madness, barbaric, and in absolute contradiction to international law,” Foreign Minister Jorge Arreaza said in a short statement at the Miraflores presidential palace.

Secretary of State Mike Pompeo has issued Iran a twelve-step program to get off nukes or face "the strongest sanctions in history" if Iran doesn't change its ways.

Number 1 is to “Declare to the International Atomic Energy Agency (IAEA) a full account of the prior military dimensions of its nuclear program and permanently and verifiably abandon such work in perpetuity.”

2. Stop enrichment and never pursue plutonium reprocessing, including closing its heavy water reactor.

3. Provide the IAEA with unqualified access to all sites throughout the entire country.

4. End its proliferation of ballistic missiles and halt further launching or development of nuclear-capable missile systems.

5. Release all U.S. citizens as well as citizens of U.S. partners and allies.         

6. End supports to the Middle East "terrorist" groups, including Hezbollah, Hamas, and Islamic Jihad.

7. Respect the sovereignty of the Iraqi government and permit the disarming, demobilization and reintegration of Shia militias.

8. End its military support for the Houthi rebels and work towards a peaceful, political settlement in Yemen.

9. Withdraw all forces under Iran's command throughout the entirety of Syria.

10. End supports for the Taliban and other "terrorists" in Afghanistan and the region and ceases harboring senior al-Qaeda leaders.

11. End the Islamic Revolutionary Guard corps-linked Quds Force's support for "terrorists" and "militant" partners around the world.

12. End its threatening behavior against its neighbors, many of whom are U.S. allies, including its threats to destroy Israel and its firing of missiles at Saudi Arabia and the United Arab Emirates, and threats to international shipping and destructive cyberattacks.

For many, these seem like obvious demands, but it is unlikely that Iran will go for it. So, Iran will face these sanctions and it will impact their oil exports. That will tighten an already tight market. Back In October, we wrote that oil would not be lower for too much longer. “ While many in the oil industry have been talking about lower for longer oil prices, the truth is that oil prices will not stay low for very much longer. Oil has confirmed that the market may have put in the most significant bottom in oil prices since 1999 after it posted its best quarter since 2004. Long-term charts are suggesting a breakout that puts oil at much higher levels. Back in early 2016 oil doubled bottomed in the $26 a barrel handle and many had felt that oil could go below $10 a barrel. They worried that shale oil production would keep oil lower for longer and big and little energy companies felt pain and embarked on the biggest investment pullbacks in energy spending history. Now with oil supply dropping at a historic rate, OPEC is doubling down on production cuts and with shale and Gulf of Mexico oil output sputtering we should see oil continue to rise into the end of the year. In fact, we should see oil continue to rise for the rest of this decade.

Gas prices are on the rise and Gas Buddy is warning that could cause a plunge in travel. According to GasBuddy, just 58 percent of motorists surveyed said they would take a road trip this summer, down 24 percent from last year. Just under 40 percent of respondents said that high gas prices were a major contributing factor, up from 19 percent a year ago. Still, we are not seeing a corresponding drop in consumer confidence so I wonder if that will really have an impact. Stay tuned.