The Hawks are Circling

Let’s cut to the chase as the energy complex has been the markets singular focus overnight and given oil prices far-reaching influence across global markets, so we might best be served to start with the meat and potatoes this morning.
Stephen Innes
Crude Oil

The Hawks are circling, and should world turn nervous?

Admittedly I’m feeling a tad naïve this morning for not picking stronger signals from both Pompeo and Bolton with regards to Iran policy. This even though I thought a large part of the Trump election 2020 strategy would not only see the President appeal to his electorate base but of course present to the media a  new villain since China will probably no longer fit the bill after a watered-down USMCA-style trade deal is signed. Well, it appears that the new villain is neither new nor surprising and was under our nose all the time.

The Trump administrations not so invisible hand, especially when it comes to economic matters, was back at it again today as the administration decided not to extend waivers on Iranian oil.

Oil prices reaction or overreaction

The prompt contracts quickly repriced higher on panic fears that markets could face an immediate supply crunch adding more pressure to the already tenuous global supply squeeze and suggesting that $80 Brent per barrel under these conditions, something we thought unlikely only days ago should now be considered a possibility. Sure  Saudi Arabia and the UAE are reportedly expected to ramp up production to fill the Iranian production gap.

However, it leaves global supplies in an even more delicate position as it will then bring into question OPEC+ elasticity and spare capacity concerns to respond to future supply shocks especially with the possibility of a catastrophic supply shock from Libya still in the fore.

Is there more than meets the eye?

I’m sure there’s more to this than meets the eye on the production side in addition to Saudi + to fill the Iran void. Its highly unlikely Trump twist the economic screws on Iran without having some supply backing as his electorate base will not be happy with +$ 3/gallon gas this summer, and that’s where prices are headed unless more supplies come to market.

Shale oil response?

But not is all bad for US drivers as Shale producers are producing at a level more abundant than ever before, but the big question is how much more can the Shale industry squeeze out at WTI $65 per barrel given the current production bottleneck?

Not all crude is created equal

However, that leads us to the issue that “not all crude is created debate equally” as in the absence of a flourishing supply of heavy crude, the sludge US Gulf refineries are built to process, its expected pressure on gasoline prices will mount regardless of shale producers’ ambitions.

Iran retaliation options

Beyond an unlikely military response which  Iran’s hard-line faction has no money to support, Tehran has threatened to stop the flow of seaborne oil exports from the Middle East by blockading the Strait of Hormuz, a 21-mile-wide strategic bottle choke point in the Arab Gulf.

Should Iran close, the Strait of Hormuz industry studies suggests, it would mean more than 18 million bpd of crude would stop flowing from the Middle East and tighten prices further.

Gold Markets

I would not confuse short covering bounce on gold with haven demand. The market is not too bent out of shape about the fact the US will not grant new waivers and what little haven demand hit the markets soon quickly evaporated as risk sentiment remained on an even keel as US equity future barely budged and the Yen saw no buying demand.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All

Top Promotions

Top Brokers

IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US