Oil prices are showing signs of breaking out to the upside as U.S. oil production falls for the second month in a row despite expectations for an increase, OPEC record compliance to oil production cuts and because of a harder line on Iran by the Trump Administration.

The Trump Administration put Iran “on notice” after they tested a missile that was a violation of Obama’s signature deal to try to convince Iran not to pursue nuclear weapons. The missile that can carry a nuclear warhead not only violates the spirit of the deal but the deal altogether. The Trump Administration said that Iran, instead of thanking us for the billions of dollars we gave them and the lifting of sanctions, are only becoming more emboldened and let’s face it, more dangerous.

The White House national security adviser, Michael Flynn, said that “recent Iranian actions, including a provocative ballistic missile launch and an attack against a Saudi naval vessel conducted by Iran-supported Houthi militants, underscore what should have been clear to the international community all along about Iran’s destabilizing behavior across the Middle East. Flynn said that the Obama administration, “failed to respond adequately to Tehran’s malign actions—including weapons transfers, support for terrorism, and other violations of international norms, and we condemn such actions by Iran that undermine security, prosperity, and stability throughout and beyond the Middle East and place American lives at risk. As of today, we are officially putting Iran on notice.”

For the crude oil market the risk premium will rise and at the very least, we could see a new call for sanctions on Iran. Under a Trump Administration Iran may not get away with the havoc and supporting of terror like they did under Obama. This should start to add to the risk premium for oil and in the beginning, it should add about 1 to 2 dollars a barrel.

Oil shook off bearish Energy Information Administration (EIA) inventory numbers because if you look beyond the headline numbers, the bearish narrative of rising U.S. oil output to astronomic levels is not panning out. The EIA headlines showed that crude supply rose 6.47 million barrels, gasoline at 3.87 million barrels, distillate at 1.57 million, supplies in Cushing Oklahoma fell yet again by 1.25 million barrels and U.S. oil production fell for the second week in a row. Most of the crude oil build was on the Gulf Coast and we’re expecting that supply will start to fall when refiners come out of maintenance.