Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Debt-Driven Consumer Economy Breaking Down - 23rd Oct 17
Next Wall Street Stock Market Crash Looms? Lessons On Anniversary Of 1987 Crash - 23rd Oct 17
This Super Metal Is Set To Soar By 300% - 23rd Oct 17
More New Record Highs As S&P 500 Gets Closer To 2,600 Mark - 23rd Oct 17
Another Minor Stock Market Top? - 23rd Oct 17
Bitcoin Hits $6,000, $100 Billion Market Cap As Helicopter Ben and Jamie Demon Warn The End Is Near! - 22nd Oct 17
Time for Caution in Gold Miners - 22nd Oct 17
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Crude Oil Price Forecast: The "Syrian Premium" Is Not Temporary

Commodities / Crude Oil Sep 12, 2013 - 01:37 PM GMT

By: Money_Morning

Commodities

Dr. Kent Moors writes: By an apparent agreement to place its chemical weapons under international control, Syria seems to have dodged an imminent American military attack.

Yet even as the world takes a step back from the brink, three critical questions still remain:


  1. Will Syrian President Bashar Assad hand over all of his chemical weapons?
  2. Will the proposed international control mechanisms satisfy Washington?
  3. Will the final result contained in the U.N. report on the chemical weapons use outside of Damascus alter the outcome?

Of course, until the latest news hit, one result had seemed certain: The global oil market was bracing for higher prices. West Texas Intermediate (WTI) closed at a 28-month high on Friday, while Brent crossed the $116 a barrel level.

Following the agreement, that trend has reversed, sending oil prices in both New York and London lower.

But has this crisis really been defused?

Just look at oil prices, and where they're undoubtedly headed...

Calculating the "Syrian Premium"

The developing tensions have added a "Syrian Premium" to the price of oil. By my best estimate, this "crisis premium" was $4 a barrel in New York and $8 in London.

In other words, absent this premium, WTI should trade at about $103 a barrel, while Brent should trade near $107.

As of Tuesday, that premium stands at $4 in London and $3 in New York, down 50% and 30% respectively off of Friday's close.

Given Syria's place in the energy markets, that is the most direct way the crisis has impacted the energy sector.

But it is hardly the only effect.

The truth is the market has no genuine way to determine the degree of volatility resulting from what is an unknown level of instability.

Needless to say, that is usually a formula for an increase in price beyond what the market fundamentals would sustain.

How long the spike remains depends on the level of uncertainty. At the moment there are more questions than answers.

And despite this morning's news, that uncertainty is not likely to be receding anytime soon.

That is because, absent a "palace coup" to unseat Assad in Damascus, nothing was likely to happen this week to reduce the tension. Congress is back in session, but the Obama Administration is still faced with a very close vote on obtaining a Congressional approval for any strike. The specter of Iraq still weighs heavily on both sides of the aisle.

It is the same case in London, where Parliament has made it clear it will not agree to support a missile strike until the U.N. team reports findings that chemical weapons were used. That may well not take place until the end of the month, although there are likely to be leaks of the main points beforehand.

France and Saudi Arabia may have already declared support for military action, but there has been no approval for any other EU or Gulf Coordination Council member state.

Meanwhile, Moscow is pledging ongoing support for Assad (while also leaving the door open to apply U.N. Security Council-sponsored pressure against the Syrians should the U.N. report justify such a move).

In short, before the news, this week had been shaping up as one of accelerating rhetoric from the White House, considerable lobbying on both sides of the issue, and a continuing impasse.

What's Our "Goodbye Code?"

Of course, President Obama could authorize a strike without the permission of Congress. But the domestic political environment in the U.S. would not support that decision.

There are clear misgivings emerging these days over the proper American position in what is a civil conflict in Syria and little support for another open-ended military excursion into the region.

That seems to be the gravamen in all of this political maneuvering and rancor. It also reminds me of a basic rule in my earlier career.

You see, in the intelligence business, you always wanted to have what we called a "goodbye code."

A "goodbye code" was the way you intended to get out of whatever situation the higher pay grades were about to put you into. It was a basic element of strategy and the primary foundation for whatever tactics we introduced to meet our objectives.

Recent American excursions - Viet Nam, Iraq, and Afghanistan - have been light on this front. What is the objective? How do we limit our involvement to meet that end? And, most importantly, how do we prevent "mission creep?"

This is what happens when what is set up to reach an objective ends up having a life of its own. It expands into something more than initially contemplated. Means become an end in themselves, clouding the goals and the ability to wind down involvement.

Nobody in Washington wants another "boots on the ground" deployment, or a multi-year commitment to overthrowing another two-bit dictator.

For their part, the wide majority of the U.S. population needs something in addition to the acceptance that Assad is a nasty fellow. No argument there.

But what is the specific American objective, and what is our "goodbye code?"

To date, the administration has not been forthcoming here. A strike means we would be injecting U.S. power into a civil war in what is already a regional pressure cooker, a move that would certainly change the dynamics for all of the countries bordering Syria and the integrity of crude oil export routes.

No Quick Answers Here

That brings us back full circle to how this will play out for energy investors.

The truth is there will be no quick answer to anything in Syria. The talking heads will continue their banter on TV (I gave my views yesterday on Fox Business). However, there will be no resolution of the instability.

And that means oil prices will continue to rise.

It is too early to make any meaningful forecasts about how this will impact the economy as a whole. What we do know is this: There will be an observable negative pressure on economic recovery should those prices rise too quickly.

My guess this morning is that a level of $120 a barrel in New York would probably result in a market pullback, although hardly a move into another recession.

Still, hedge funds are already placing bets on higher gold prices in anticipation of higher oil levels. This is merely a result of something I identified here in Oil & Energy Investor several months ago about how oil is becoming the new "gold standard."

Oil is now playing the tune that gold dances to, with the rest of the market following closely behind.

At least until Tuesday...

Until the specifics are in, however, the proof this situation has been defused is in the details.

And those may now be set, at least initially, not in Washington or Damascus but in Moscow.

Next: Here's How to Play the "Syrian Premium"

Source :http://moneymorning.com/2013/09/12/oil-forecast-the-syrian-premium-is-not-temporary/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife