by Fortuna's Corner
June 2014
http://fortunascorner.com/2014/06/15/iraq-crisis-could-send-oil-prices-sharply-higher-stocks-sharply-lower/
Middle East Tension Could Send Oil To $120-$140 Per Barrel, Send Stocks Sharply Lower
Happy father’s day out there to all you fathers. Hope you had a good one. Barron’s had a feature article on what the second half of 2014 might bring for U.S. equities. More on that later. First, let’s examine what happened last week; and, where we sit halfway through 2014.
Middle East Violence Could Send Oil Prices Sharply Higher
As Avi Salzman wrote in this weekend’s Barron’s, “news of violence and political upheaval dominated headlines last week, causing stocks tumble after a three-week winning streak. Sunni militias — inspired by al Qaeda captured two cities in Iraq, as the Iraqi government scrambled to defend Baghdad — with help from Iran. The sudden strife caused oil prices to spike, with Nymex Crude futures rising 4.1 percent to $106.91 per barrel. their highest level since September of 2013.” Meanwhile, Brent Crude climbed to $114 early Friday, before dipping down to $112.47.
As Ambrose Evans-Pritchard wrote in this weekend’s “The Daily Telegraph,” “as the self-described Islamic State of Iraq and The Levant (ISIL) raced down the Tigris Valley towards Baghdad, with sophisticated weaponry, and seizing on its momentum after capturing Mosul, — Iraq is turning into a nightmare. There are real risks that this extremist Islamic movement will metastasize, as jihadist flock to Iraq and Syria — envisioning their holy war “Woodstock.” That could send oil prices a lot higher. “Our economies are too weak to pay for oil at $120; and, they can’t stand $140 if it spikes that high,” said Chris Skrebowski, a veteran oil analyst and former editor of The Petroleum Review. Fadel Gheit, an analyst with Oppenheimer and Company said, “my prediction is that for every million barrels of Iraqi oil we lose — oil prices will go up $10 per barrel.”
Iraq is OPEC’s second-biggest producer, though output has slipped to 3.3M barrels per day since February due to sabotage of the Kirkuk-Ceyhan pipeline to Turkey. Ole Hansen of Saxo Bank said a fall in Iraqi output to levels last seen during the Gulf War — would cause a $20 price spike. Michael Lewis of Deutsche Bank said “the pitched battles have created a “new event risk” for global oil markets.”
“Iraq’s fragmentation greatly increases the risk of intervention by Iran, Turkey, and other outside powers, turning the crisis into a full-blown struggle for dominance between Sunni and Shia Muslims — echoing Europe’s Thirty Years War in the 17th century between Catholics and Protestants,” wrote Mr. Evans-Pritchard.
My own view is that this heightened anxiety over the jihadist march across Iraq and Syria is indeed likely to send oil prices sharply higher; and, I would not be surprised to see a healthy sell-off in stocks in conjunction. A short-term oil play wouldn’t be a bad idea in my view. A wildcard could be a release by POTUS Obama of the Strategic Petroleum Reserve — which would have a temporary effect of dampening oil prices from spiking or accelerating; but, if the situation in the Middle East gets worse, such a release would not likely prevent a surge in prices north of $120 and perhaps even towards $150 per barrel. It is time to get defensive in stocks — in my opinion — as well as have cash ready to buy on a sharp selloff. On the other hand, precious metals — gold, silver, etc; could all sharply rise as investors seek safety.
For the week, the DOW fell 148pts., or 0.9 percent to 16,775; while the (S and P) fell 13.28pts., or 0.7 percent; and, the NASDAQ dropped 10.75pts., or 0.2 percent to 4310. For the year, the DOW is +1.2 percent, the (S and P) +4.75 percent; and, the NASDAQ +3.21 percent.
“The instability in Iraq, and the sudden change in the energy market were disruptive and they weren’t in anyone’s forecast,” said Tobias Levkovich, Chief Equity Strategist at Citigroup.
Barron’s Roundtable On The Second Half Of 2014 And Outlook For Stocks
If we can get past the Iraq implosion; and, things don’t get much worse, the outlook for stocks for the rest of 2014 isn’t all that rosy, according to a Barron’s Roundtable discussion with market gurus. Lauren Rubin had a feature article in this weekend’s Barron’s, “Picking Up The Pieces,” writing “say goodbye to sunny skies and ditch the rose-colored glasses. That’s the collective advice of the investment seers who populate the Barron’s Roundtable, and whose market forecasts for the back half of 2014 range from meh to feh. Specifically, the bulls in the bunch see a meager 5 percent gain in the (S and P) 500 in the months ahead, while the rest see a volatile rout in late summer that could leave stocks 10 percent lower, at least. Equities aren’t wildly overvalued, according to Barron’s interviewed; but, neither are they charmingly cheap,” Ms. Rubin noted. “Economic growth at home and abroad is lacking, darkening the outlook for consumer spending and corporate-revenue gains. When the bond market is the only party in town,” she wrote, “it pays to be cautious — or, find another town.”
Wish I had better thoughts; but, if the situation in Iraq gets worse — and, all indications are that it will — then, I think we’ll see a sharp selloff in stocks that could see us losing all the year’s gains; and, perhaps end the year 10 percent lower. I hope I am wrong. V/R, RCP
June 2014
http://fortunascorner.com/2014/06/15/iraq-crisis-could-send-oil-prices-sharply-higher-stocks-sharply-lower/
Middle East Tension Could Send Oil To $120-$140 Per Barrel, Send Stocks Sharply Lower
Happy father’s day out there to all you fathers. Hope you had a good one. Barron’s had a feature article on what the second half of 2014 might bring for U.S. equities. More on that later. First, let’s examine what happened last week; and, where we sit halfway through 2014.
Middle East Violence Could Send Oil Prices Sharply Higher
As Avi Salzman wrote in this weekend’s Barron’s, “news of violence and political upheaval dominated headlines last week, causing stocks tumble after a three-week winning streak. Sunni militias — inspired by al Qaeda captured two cities in Iraq, as the Iraqi government scrambled to defend Baghdad — with help from Iran. The sudden strife caused oil prices to spike, with Nymex Crude futures rising 4.1 percent to $106.91 per barrel. their highest level since September of 2013.” Meanwhile, Brent Crude climbed to $114 early Friday, before dipping down to $112.47.
As Ambrose Evans-Pritchard wrote in this weekend’s “The Daily Telegraph,” “as the self-described Islamic State of Iraq and The Levant (ISIL) raced down the Tigris Valley towards Baghdad, with sophisticated weaponry, and seizing on its momentum after capturing Mosul, — Iraq is turning into a nightmare. There are real risks that this extremist Islamic movement will metastasize, as jihadist flock to Iraq and Syria — envisioning their holy war “Woodstock.” That could send oil prices a lot higher. “Our economies are too weak to pay for oil at $120; and, they can’t stand $140 if it spikes that high,” said Chris Skrebowski, a veteran oil analyst and former editor of The Petroleum Review. Fadel Gheit, an analyst with Oppenheimer and Company said, “my prediction is that for every million barrels of Iraqi oil we lose — oil prices will go up $10 per barrel.”
Iraq is OPEC’s second-biggest producer, though output has slipped to 3.3M barrels per day since February due to sabotage of the Kirkuk-Ceyhan pipeline to Turkey. Ole Hansen of Saxo Bank said a fall in Iraqi output to levels last seen during the Gulf War — would cause a $20 price spike. Michael Lewis of Deutsche Bank said “the pitched battles have created a “new event risk” for global oil markets.”
“Iraq’s fragmentation greatly increases the risk of intervention by Iran, Turkey, and other outside powers, turning the crisis into a full-blown struggle for dominance between Sunni and Shia Muslims — echoing Europe’s Thirty Years War in the 17th century between Catholics and Protestants,” wrote Mr. Evans-Pritchard.
My own view is that this heightened anxiety over the jihadist march across Iraq and Syria is indeed likely to send oil prices sharply higher; and, I would not be surprised to see a healthy sell-off in stocks in conjunction. A short-term oil play wouldn’t be a bad idea in my view. A wildcard could be a release by POTUS Obama of the Strategic Petroleum Reserve — which would have a temporary effect of dampening oil prices from spiking or accelerating; but, if the situation in the Middle East gets worse, such a release would not likely prevent a surge in prices north of $120 and perhaps even towards $150 per barrel. It is time to get defensive in stocks — in my opinion — as well as have cash ready to buy on a sharp selloff. On the other hand, precious metals — gold, silver, etc; could all sharply rise as investors seek safety.
For the week, the DOW fell 148pts., or 0.9 percent to 16,775; while the (S and P) fell 13.28pts., or 0.7 percent; and, the NASDAQ dropped 10.75pts., or 0.2 percent to 4310. For the year, the DOW is +1.2 percent, the (S and P) +4.75 percent; and, the NASDAQ +3.21 percent.
“The instability in Iraq, and the sudden change in the energy market were disruptive and they weren’t in anyone’s forecast,” said Tobias Levkovich, Chief Equity Strategist at Citigroup.
Barron’s Roundtable On The Second Half Of 2014 And Outlook For Stocks
If we can get past the Iraq implosion; and, things don’t get much worse, the outlook for stocks for the rest of 2014 isn’t all that rosy, according to a Barron’s Roundtable discussion with market gurus. Lauren Rubin had a feature article in this weekend’s Barron’s, “Picking Up The Pieces,” writing “say goodbye to sunny skies and ditch the rose-colored glasses. That’s the collective advice of the investment seers who populate the Barron’s Roundtable, and whose market forecasts for the back half of 2014 range from meh to feh. Specifically, the bulls in the bunch see a meager 5 percent gain in the (S and P) 500 in the months ahead, while the rest see a volatile rout in late summer that could leave stocks 10 percent lower, at least. Equities aren’t wildly overvalued, according to Barron’s interviewed; but, neither are they charmingly cheap,” Ms. Rubin noted. “Economic growth at home and abroad is lacking, darkening the outlook for consumer spending and corporate-revenue gains. When the bond market is the only party in town,” she wrote, “it pays to be cautious — or, find another town.”
Wish I had better thoughts; but, if the situation in Iraq gets worse — and, all indications are that it will — then, I think we’ll see a sharp selloff in stocks that could see us losing all the year’s gains; and, perhaps end the year 10 percent lower. I hope I am wrong. V/R, RCP
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