Best of the Week
Most Popular
1.Dow Stock Market Trend Forecast 2015 by Nadeem Walayat - Nadeem_Walayat
2.Gold And Silver – Forget The News. Silver $12 – 14? Gold $1,000 – 1,100? 5 - Michael_Noonan
3.A TOP Formation In Apple Inc. - Crash Condition Signal Recorded - David Harris
4.Gold Gets Safe Haven Bids But COMEX Has Stopping Power - GoldSilverWorlds
5.The Swiss 10-Year Bond Illustrates Central Banks` Flawed Monetary Policy - EconMatters
6.Exponential Explosions in Debt, the S&P, Crude Oil, Silver and Consumer Prices - DeviantInvestor
7.“Forgive Us Our Debts” – Only Way To Prevent Economic Meltdown - GoldCore
8.Is Russia Planning a Gold-Based Currency? - Marcia Christoff-Kurapovna
9.Stock Market Trend Forecast 2015 Video - Nadeem_Walayat
10.Gold GDX ETF Technical Analysis - Austin_Galt
Last 5 days
"Audit the Fed"? We've Already Done That (Well, Kind of) - 26th Feb 15
Forget Peak Oil; Worry About Peak Demand - 26th Feb 15
Currency Wars, Again - 26th Feb 15
The Fed Waited Too Long: Here Comes Inflation - 26th Feb 15
Investing Inertia Won’t Keep Your Cash Safe - 26th Feb 15
The Net Neutrality Scam - 26th Feb 15
Will Conservatives Out of Control Immigration Crisis Boost UKIP Election 2015 Prospects? - 26th Feb 15
EU Warns Ireland and Euro Zone of Debt Dangers - 26th Feb 15
Commodity Prices Set To Plunge Below 2008 Lows - 26th Feb 15
Ukraine Hyperinflation as Currency Plunges 44% in One Week! - 26th Feb 15
The State of the Global Markets 2015 - 53 Page Report - 26th Feb 15
NASDAQ New 15 Year High - Stock Market Death By Overdose - 25th Feb 15
12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - 25th Feb 15
Sugar Commodity Price To Sweeten Up - 25th Feb 15
Investor Profits from China 2,000-Year Unstoppable Trends - 25th Feb 15
How to Borrow Cheaply from a Government-Owned Bank - 25th Feb 15
Debt Be Not Proud - 25th Feb 15
Liberal Democrat Election Blood Bath - Could Nick Clegg Lose Sheffield Hallam? - 25th Feb 15
Wheat Commodity Price Technical Trend Forecast - 24th Feb 15
Bitcoin Price Might Stay below $250 - 24th Feb 15
Another Important Stock Market Inflection Point Approaching - 24th Feb 15
Gold: The Good, Bad, and Truly Ugly - 24th Feb 15
Eurozone Gold Holdings Increase to 10,792 Tonnes As “Reserve of Safety” Amidst Crisis - 24th Feb 15
Bird Doo; Yellen Goes to Congress - 24th Feb 15
Is Gold Investing Risk Free? - 24th Feb 15
The Bull Case For Gold Price 2015, and the Bear - 24th Feb 15
Europe - The Intersection of Three Crises - 24th Feb 15
Gold Price Just Needs More Time - 24th Feb 15
Gold Price Downtrend Looks Set to Continue - 23rd Feb
Silver Price Depressing Downtrend Will Eventually End - 23rd Feb 15
5 Reasons Why You Should Sell Amazon Stock - 23rd Feb 15
Global System Catastrophe Is Key Threat To Human Civilisation - 23rd Feb 15
Greece Crisis Yields Ideal Market Opportunities - 23rd Feb 15
Gold and Silver Stocks or General Stock Market Indices? - 23rd Feb 15
Swimming With Sharks: Goldman Sachs, Schools and Capital Appreciation Bonds - 23rd Feb 15
Stock Market - The Fed Still Has Your Back - 23rd Feb 15
Soybean Commodity Price Technical Outlook - 23rd Feb 15
Gold Weekly COTs and More - 23rd Feb 15
Stock Market New Highs With Weak Breadth - 23rd Feb 15
Greece Surrenders to Troika - 22nd Feb 15
This Greek Tragedy is a Global Farce - 22nd Feb 15
Copper Commodity Price Technical Outlook - 22nd Feb 15
U.S. Dollar and Investing in Gold Stocks - 22nd Feb 15
Is Putin's Russia Ready For Total Economic War With the West? - 22nd Feb 15
Stock Market New All Time Highs - 22nd Feb 15
Dow New Stock Market All time High as Greece Surrenders to Germany - 21st Feb 15
Gold And Silver – Banker’s Grip On Precious Metals Not Over! - 21st Feb 15
What Uber Could Teach the American Economy - 21st Feb 15
The Morris Massey Stock Market - 21st Feb 15
Are Conditions Setting The Market Up For A Summer Washout? - 21st Feb 15
The Seven Financial Indicators of Highly Successful Biotech Stocks Investing - 21st Feb 15
Varoufakis’s Revolutionary Plan for Europe - Don't Tell Anyone in Berlin - 20th Feb 15
South Korea’s Keynesian Experiment Goes Global - 20th Feb 15
How Germany Can Save Greece and the EU - 20th Feb 15
Beware the Stocks Bear Market! - 20th Feb 15
Gold Bides Time – Massive Complacency Regarding Ukraine, Greece and Debt Crisis - 20th Feb 15
The Simplest Long-Term Investment Strategy You'll Ever See - 20th Feb 15
Greece Crisis - Germany Rejects Greek Trojan Horse Bridge Financing Loan Con - 20th Feb 15
UK Political Party Funding Suggests Another ConLib General Election Outcome 2015 - 20th Feb 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The State of the Global Markets 2015

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

© 2005-2015 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

Free Report - Financial Markets 2014