Kill! Kill! Kill!


Last Friday I said you should have exposure to oil stocks.

One reason was the rising geopolitical risk coming out of the Middle East. The US is provoking Iran.

You didn’t have to wait long to see this idea in action.

That very day, one of my recommended energy stocks in Grand Cycle Investor rose 8%.

I’ll say it again: this stock could be a cracking speculation in today’s market. You can get the full details by signing up here.

Drop me an email if need be for the full details if anything isn’t clear.

This time it was a drone strike on an Iraqi airport that killed a major Iranian military commander. Oil rose over 2% in US trading after the hit…

War comes to the Middle East — again

Former CIA counter terrorism specialist, Philip Giraldi now considers the two countries at war.

Now we have the extraordinary situation where the Iraqi parliament has voted for the US military to leave the country because the US so blatantly violated its sovereignty.

It would be as if the US bombed Sydney Airport — without our permission.

The Iraqi resolution is non-binding and will most likely be ignored in the short-term.

But no American troop or civilian is going to feel very safe anywhere near Syria, Iraq, Saudi Arabia and, of course, Iran. This is an explosive situation.

At the very least, it reduces one of the risks to the oil market in 2020: the return of Iranian oil to the world oil market without US sanctions.

Those are now highly likely to remain in place as Iran and the US square off against each other.

This is keeping oil prices higher than they otherwise would be. This situation with Iran is unlikely to die down anytime soon.

The US seems very keen to antagonise Iran: blowback in some form seems likely.

This problem is particularly acute for Australia. We have a dismal supply of crude and refined products in storage.

That figure is about 50% less than we are supposed to have under international obligations.

It’s a national security issue and why a former Australian Air Force vice marshal has warned on it since 2014.

In January 2019, he estimated the economy could be brought to its knees ‘in a week’ with a major fuel disruption because our reserves are so low.

The federal government’s response was to suggest drilling for oil in the Australian blight to secure more domestic supply.

That oil is years away even if such an idea can overcome the considerable environmental objections around it.

In other words, the government is doing nothing.

Speculators: these shares could spike at anytime

That’s not the only dynamic in play here, either. The effect of new shipping rules now in force remain unclear over the remainder of the year.

But they could certainly exert more upward pressure on oil prices. This dynamic is part of what drove oil toward US$150 in 2008.

I expressed a similar idea over 2019. Oil rose but did not spike. But that doesn’t mean the stresses and tensions at work are gone. If anything, they’ve become more acute.

It reminds me of the Rick Rule line that just because something is inevitable does not mean it’s imminent.

You could consider any oil speculations as a hedge for you regular portfolio against Middle East conflict.

If the situation dies down, you’ll most likely make money from the other holdings (especially thanks to the central banks as I explain here).

If the situation escalates, you should bank a win on your energy plays and certainly need to start thinking about which of your holdings could be hurt by sustained higher oil prices. Qantas springs to mind here.

It’s not as if the Aussie consumer has a lot of spare cash lying around, either.

A reasonable rise in fuel costs could seriously dent weekly budgets and restrict consumer discretionary spending even further.

A slightly stronger Aussie dollar helps here. But there’s no guarantee it will stay that way.

I said it over 2019 and the US is playing to script. Oil is the biggest risk to the ongoing bull market in 2020. But it could provide some astonishing speculations, too.

Read on to hear my colleague Jonathan Evans on gold under this dynamic, too…


Callum Newman Signature

Callum Newman,
Editor, Profit Watch