The Battle For Oil Prices Is On
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To investors,
The year started with about as good of an economic setup as you could ask for. Inflation was rapidly falling. There was an AI-driven economic boom underway. Stocks were hovering at all-time high prices. Home affordability finally looked like relief was on the way. And there was a level of optimism held by investors that led to capital pouring into markets.
That all changed in the last few weeks as the United States has been locked in a kinetic conflict with Iran.
Last night that conflict took an even bigger negative turn. The first incident was an Israeli strike on Iran’s South Pars gas field facilities, which damaged processing and refining infrastructure. This missile strike appears to have significantly impacted output from the facility.
In retaliation, Iran immediately lashed out and successfully struck Qatar’s Ras Laffan Industrial City. This is a big deal because Ras Laffan is the world’s largest LNG export facility (approximately 20% of global supply). Just look at the destruction from videos surfacing in the aftermath:
Qatar has reported a number of other strikes on their oil and natural gas facilities throughout the country as well. American investors woke up to the news and markets are reacting negatively to the prospect of a crisis.
Daniel Lacalle writes “Markets are reacting to a risk of a global LNG crisis, which is much worse than an oil shock. An oil shock is quickly solved by non-OPEC supply, alternatives, and flexible systems. LNG is only 15% of the total gas market but very tight in supply and much more challenging to solve, adding to the problems of regasification and storage.”
The most interesting aspect of the market reaction over the last week is the conflicting signals coming from different alarm systems. Michael Gayed shows “bonds are pricing in recession while oil prices scream inflation. Both can't be right.”
But maybe both are right and we are headed towards very weird times. This stagflation-type situation would really throw a wrench in the booming economic times that illustrated the start of the year. CNBC discussed this well yesterday:
So the United States has a few things that need to be done immediately:
Secure the Strait of Hormuz and re-open the flow of oil to the world
Increase US production and export of oil, including deregulating the oil and gas industry so we can drill faster
Remove or reduce sanctions on various countries or oil to increase global flows
Release strategic reserves from the US and allies
Simply, the global battle over oil prices is on. The higher the price goes, the more pain Iran is able to inflict on the world. The lower the price goes, the more leash the United States and our allies will get with the conflict duration.
Unfortunately, the trend will be for higher oil prices. This means the US is on a shot clock. Quickly end the war and claim victory or risk pushing the US into recession in a mid-term year. It is hard to see a world where Trump will allow that to happen, so the entire market is waiting for the pivot.
The question is just how long will we be waiting. And only the guy in the White House knows the answer to that question. Hope you all have a great day. I’ll talk to everyone tomorrow.
- Anthony J. Pompliano
Founder & CEO, Professional Capital Management
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Your remedies are completely leaving out renewable energy as a hedge. We need to double down there and further lessen dependence on oil driving so much of our economy.
hey I broke your CFO Silvia in a great way I turned it into a biotech M&A machine hit me up would love to explain what i did