Our suggestion that oil prices would rally are all coming true. Social mood towards oil prices is improving.

Oil prices hit a two-year high amid growing optimism that the crude glut is shrinking. US crude futures rose 24 cents of .4 percent, to $54.54, the highest since July 2, 2015. The Us benchmark has gained in 15 of the last 19 sessions. Brent, the global benchmark rose 13 cents of .2 percent to $60.62 a barrel.

Oil Climbs to Highest in two Years, WSJ Friday November 3, 2017.

Our suggestion that oil prices would rally are all coming true. Social mood towards oil prices is improving. Who really knows what OPEC and the Russians might be doing with oil supplies? Our spooks don’t even know what Russia is doing with the Democrat National Committee for goodness sakes!

The percent of oil production shares in bullish formation remains high at 75 percent. The energy ETF XLE backed off this past week but by Thursday was moving up yet again. XES the energy service ETF, did the same and finally looks ready to join the party in a larger move.

Shell’s CEO Ben van Beurden has adopted a bit of negative mindset declaring “oil prices will be lower forever.” Yet Shell’s profit tripled from the same quarter last year. Net profit was a whopping$3.7 billion. Exxon Mobil and Chevron reported 50 percent increases in net profit over their prior third quarters. Total net jumped 40 percent. The bottom line is that firms have managed to cover costs, dividends, and make a profit on $50 oil. In fact British BP said as much this past week.

Oil prices are now in what traders term "backwardation." This means the more distant months are trading at a discount to the current month. So traders are apparently expecting some sort of ceiling in oil prices. Meanwhile producers can lock in the $50 level covering costs and dividends.

The ability to cover costs at the $50 level is apparent among the smaller Eagle Ford Producers. Abraxas AXAS has risen form $1.65 to $2.158 in the last two months. Diamondback FANG is up from $85 in July to $109 today.

Our expectation is for prices to increase into the month of December before a top sets in.

Meanwhile the stock market has shrugged off everything from terror attacks to nuclear war threats to NFL-Papa John pizza feuds, and various Trump tweets. What could go wrong?

My answer is not the failure to repeal ACA or whatever happens to so called tax reform (looking more milquetoast all the time), but trade. Trump, who has no background in trade, is for some bizarre reason, obsessed with demanding a trade balance with Mexico and Canada. Trade and wealth creation have soared since, yes, Bill Clinton, signed NAFTA over union protests. Now Trump wants a five year sunset provision, a weakening of the dispute resolution system, and higher levels of US specific content. What really worries me is this comment from Commerce Secretary Wilbur Ross (who surely knows better) that ‘Mr. Trump is not a bluffer.’

That may be fine in wrangling concessions for a golf course or hotel with the usual gruffness we have come to expect from the Queens, NY resident. But it is now a way to bully an entire economy.

As we have pointed out before, nations producing like goods, cars and washing machines, are going to experience imbalances of trade. Nations producing dissimilar goods, agriculture versus electronics, may both have positive trade balances.

Already hundreds of letters from Chambers of Commerce and trade groups have been sent to the White House. The National Cattleman’s Beef worries this will decrease Mexican demand for US -produced beef. Similar concerns exist across numerous agriculture sectors.

This foolishness has an antecedent in the disastrous Tariff Act of 1930 (Smoot-Hawley). This raised tariffs on some 20,000 imported goods. This reduced America’s imports and exports by half during the Depression. Of course this was reflected in lengthening the Depression. The insanity did not officially end until after WW II. The General Agreement on Tariffs and Trade GATT finally reduced tariffs in October, 1947. Not surprisingly the Depression finally ended in 1947-48 as the eighteen year bear market turned bullish with the arrival of we baby boomers.

Donald likes to brag that his college degree is from Wharton. Well he has an undergraduate degree from Wharton. We suggest he enroll on line for an MBA re-fresher, or at least a study of why the Depression lasted so long.

Follow Dennis Elam at http://www.themarketperspective.com