Tag Archives: Strait of Hormuz
IAEA Gets Nowhere With Iran Nuclear Talks
Posted on 22. Feb, 2012 by Wilensky.
While Iran’s willingness to reopen talks with the International Atomic Energy Agency about their nuclear program was a surprise, it seems that the motion was mostly for show. Several rounds of discussions yielded no access to a military site in Parchin which is suspected to be a weapons development facility. There has been no agreement on further discussing the matter. Light crude is hovering close to $106 a barrel today, so much for Prince Alwaleed’s promise to keep oil under the $100 a barrel mark.
“The International Atomic Energy Agency has reported that it held a “disappointing” meeting with Iran this week over the country’s nuclear programme, with no agreement reached on any of the key issues under discussion. After a two-day meeting in Iran, IAEA officials returned to the UN watchdog’s headquarters in Vienna on Wednesday and indicated that talks with Iranian officials had made no progress.”
CVN-72 Abraham Lincoln Get’s Some Valentine’s Day Love From Iran: Escorted Through Hormuz
Posted on 14. Feb, 2012 by Wilensky.
As the Carrier Abraham Lincoln left the gulf Tuesday, it’s battle group contingent was on high alert. According to the AP:
The passage ended a Gulf mission that displayed Western naval power amid heightened tensions with Tehran, which has threatened to choke off vital oil shipping lanes.The Lincoln was the centerpiece of a flotilla that entered the Gulf last month along with British and French warships in a display of Western unity against Iranian threats. There was no immediate comment by Iran about the Lincoln’s departure. Iran’s Revolutionary Guard has said it plans its own naval exercises near the strait, the route for a fifth of the world’s oil supply. But Iran’s military has made no attempts to disrupt oil tanker traffic — which the U.S. and allies have said would bring a swift response.”
Along with the warships several US choppers provided support as an Iranian patrol plane accompanied by an unmanned drone flew overhead. Patrol boats were also spotted although they kept their distance, possibly due to rough conditions during the battle group’s crossing. According to ZeroHedge, it is unclear if the drones shadowing CVN-72 were the same that Iran with China’s help, reverse engineered after the US drone fell in the middle of Tehran and did not self-destruct.
Saudi Arabia Will Not Let Oil Go Above $100
Posted on 07. Feb, 2012 by Wilensky.
According to Saudi Prince Alwaleed bin Talal al Saud, the billionaire head of Kingdom Holding Co., Saudi Arabia is poised to limit the appreciation of oil to no greater than $100 a barrel.
“We can use our leverage, our excess capacity to be sure to pump more [oil] if needed so it will not impact the consumer countries while they’re getting out of their recessions slowly but surely,” the prince said.
As for Iran, he said it is important for the U.S. and other nations to put sanctions on the “renegade country” to force its government to negotiate. Issuing an ultimatum of war would push Iran to the “desperate move” of blocking the vital oil shipment waterway.
“I believe a solution is not impossible with them,” bin Talal said of Iran. “A dialog is the best way to do it.”
It seems that the House of Saud is willing to trade a guaranteed cap on oil price in order to protect the Strait of Hormuz, a shipping lane through which 20% of the world’s tanker transported oil passes. Although Alwaleed felt that if the Strait was closed by Iran, the US would have very little trouble opening it again. As the largest shareholder of Citigroup and a major investor in News Corp, Apple, and Twitter, Alwaleed has quite a bit of exposure to the US economy if the situation with Iran escalates.
via Saudi Arabia Will Not Let Oil Go Above $100: Prince – US Business News – CNBC.
With Iran Offline, Oil Could Jump 30%
Posted on 03. Feb, 2012 by Wilensky.
Despite our massive emergency oil reserves (see here), the IMF estimates a halt in Iran crude could produce a rather dramatic effect in the price of oil:
“If Iran halts exports to countries without offsets from other sources it would likely trigger an “initial” oil price jump of 20 to 30 percent, or about $20 to $30 a barrel, the IMF said in its first public comment on a possible Iranian oil supply disruption.”
“Financial sanctions against Tehran may be ‘tantamount to an oil embargo’ and would imply supply declines of about 1.5 million barrels per day from the world’s fifth-largest oil producer”
“That volume of supply disruption would be comparable to losses in output from Libya last year due to civil war that pushed oil prices over $100 a barrel. Iran exports about 2.6 million barrels per day of oil.”
Although we can’t predict the future, it’s relatively safe to say that any ban on Iranian oil would most likely be far from exhausting US reserves. Which brings to mind the slightly altered words of the late James Murphy, “headline risk is one hell of a drug…”
via IMF: halt in Iran oil could push crude up 30 percent | Reuters.
What Does a Third Carrier Battle Group in the Gulf Mean?
Posted on 31. Jan, 2012 by Wilensky.
Having already recently warned the US (Jan 3), Iran is certainly not going to appreciate the addition of a third Carrier Battle Group around the Strait of Hormuz which was announced yesterday on Navaltoday.com. Generally a Battle Group makes for a bit of a procession. Although it varies depending on the mission, the structure of a Group generally consists of: the aircraft carrier itself, two offensive guided-missle cruisers to engage land targets, two destroyers for defensive maneuvers against submarines and aircraft, a frigate to protect from submarine attacks, two submarines also for defensive purposes, and a supply ship to provide support for the group.
This new group will join the USS Abraham Lincoln with her cruiser and two destroyers, all of which were escorted into the Gulf of Persia by a couple of British and French warships on the 22 of January. The two groups are further backed by the USS Carl Vinson on the other side of the Strait of Hormuz. Historically, the US Navy tends to use only two battle groups when conducting joint strikes although a third is often on hand.
It certainly seems as if the US Navy is expecting backlash from the most recent sanctions placed on Iran, and the obvious response is an attempted closure of the Strait. While crude futures have traded down slightly the past few days, oil is definitely something to have on your radar in the upcoming weeks.
Iran, Nuclear Policy, and America: An Investment Opportunity In Disaster?
Posted on 24. Jan, 2012 by Wilensky.
We have a delicate balancing act at hand between the threat of an emerging nuclear power, our rapacious thirst for oil, and responsible diplomatic policy. The consternation in the air is palpable, bringing to mind Buffet’s famous words “Be fearful when others are greedy and greedy when others are fearful”. So how does one put such words of wisdom into an actionable trade idea? Since going long nuclear fallout seems short sighted, let’s look at how to take advantage of a potential event driven jump in the price of oil once we fully grasp the situation at hand.
At the mentioning of the country results in a harsh, metallic taste of uncertainty and fear in the back of your mouth when you consider the effects on your portfolio. Developing a perspective on the state of affairs is difficult, especially solely from sorting through headline after headline; from the motorcycle delivered assassination of nuclear scientist Mostafa Ahmadi Roshan on Wednesday near Iran’s main enrichment facility to Europe’s proposed boycott of Iranian crude, to the menacing threat of a barricade in the Strait of Hormuz.
Lets break things down and set the scene so we can take a more accurate look. We have two main catalysts; the increasing threat that Iran poses to the rest of the world and of course, oil. It was most recently reported that Iran’s nuclear program had passed the low enrichment rate of 3-5% and begun to reach the threshold of weapons grade uranium, breeching the 20% level which is sufficient enough for a crude yet effective nuclear weapon. The assassination of Roshan yesterday only supports this theory, suggesting the program had progressed far enough to merit a public killing regardless of the political fallout. While the nuclear threat from Iran doesn’t seem all that immediate (at least until they find another sucker to be Director), former CIA chief Michael Hayden still feels the country ” ..is the single greatest destabilizing element right now with regards to global security”.
Fear aside, this brings us to the second catalyst: oil. One fifth of the world’s oil passes through the 34 mile wide channel, accounting for 35% of all waterborne oil traffic.. an ideal conduit for a battered and beaten nation to draw in an unwavering audience.
Now Iran gets pushed around quite a bit, with the most recent abuse in the form of sanctions against all crude oil exported from the nation; starting what Iran has referred to as an “economic war” on the country’s largest export. A ten day long display of naval tactics in the Strait was just the beginning for Iran’s government, stating that “if sanctions are adopted against Iranian oil, not a drop of oil will pass through the Strait of Hormuz.” Responding in turn, the US Navy ordered a second Carrier Battle Group into the region, just to keep an eye on things (which must make China feel all warm and fuzzy inside).
So now that we have pieced together a relatively coherent picture of the different catalysts in the scenario that could lead to a spike in oil prices, lets take a look at how to best position for such an event.
1. In an effort to reduce variables in such a complex and politically driven scenario, a simple strategy is highly recommended for the average investor. One of the easiest and cheapest options to develop a position is through buying the corresponding ETF, although since these funds generally invest in near term futures contracts due to the difficulty of holding the physical asset there is potential for some tracking error on the part of the fund.
2. Another option that provides a more direct investment is to own the actual oil companies (SLB, HES, HAL, XOM, etc.) Although also relatively inexpensive in terms of trade costs, this strategy subjects you to the headline risk of the individual companies rather than limiting your exposure directly to the price of oil. This strategy also lacks a guarantee that the correlation between oil company and oil price will appreciate in line with each other.
3. Which brings us to a play more directly linked to the movement in the price of oil and involves less capital than option 1 and option 2: buying options on the futures contracts. Each contract is for 1,000 barrels and a $.01 move in the price per barrel equals a $10 move in contract price. The pricing of these options requires some understanding of both the futures markets and options strategies, so is not appropriate for the average investor.
While some sort of drama ensuing from the Middle East debacle seems imminent, there is no guarantee that events will play out as expected and oil prices will respond in turn. Buying stock in a solid, multi national company with a strong balance sheet and diversified portfolio of assets might be a safer play on the chance that Iran can agree to some sort of terms on their Nuclear development program.
The Ban on Iran: Tehran continues with threats
Posted on 23. Jan, 2012 by Wilensky.
As promised, the European Union followed through with their promise to ban all oil imports from Iran today in an effort to halt the country’s nuclear development program. The halt on oil was accompanied by a number of other provisions including sanctions on trading with their central bank. Just days after the US, French, and British militaries sent a flotilla of warships through the gulf, the combined effect of the ban and military actions are sure to add pressure to our already tense relationship with Iran who reiterated their threat of a closure of the Strait of Hormuz. Markets responded with a more than 1% jump in the price of Brent futures, surpassing the $111 a barrel handle. Although the situation is seemingly bullish for oil, investors should remain cautious of the high exposure to headline risk.
See more here: EU bans Iranian oil, Tehran responds with threats | Reuters.
France Said to Seek Faster Start to EU Iran Oil Embargo
Posted on 17. Jan, 2012 by Wilensky.
Oil markets see a bit of a boost from France’s push toward cutting the grace period before implementing a ban on Iranian crude in half, breaking a 4 day loosing streak.
Jan. 17 (Bloomberg) — France is pushing for faster enforcement of the European Union’s proposed ban on oil imports from Iran, two officials with knowledge of the matter said.
France wants the embargo to be delayed by no more than three months to allow nations including Greece, Italy and Spain to find alternative supplies, according to a French government official, who declined to be identified, citing state rules. While France is seeking a shorter exemption for existing crude purchase contracts, a six-month delay favored by more EU nations remains the more likely compromise, said the second person, an EU diplomat, who also asked not to be identified because the talks are confidential. Both officials spoke yesterday.
EU foreign ministers are scheduled to decide on the ban, which will probably also include an exemption for Eni SpA, Italy’s biggest oil company, at a Jan. 23 meeting. The embargo requires unanimity among the bloc’s 27 states. Iranian officials have threatened to block the Strait of Hormuz, through which almost 20 percent of the world’s oil flows, if exports are curbed.
via France Said to Seek Faster Start to EU Iran Oil Embargo – Businessweek.
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