Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Implications for Stock Market - Nadeem_Walayat
2.Odds of Winning Walkers Crisps Spell & Go olidays K, C and D Letters - Sami_Walayat
3.Massive Silver Price Rally During The Coming US Dollar Collapse - Hubert_Moolman
4.Pope Francis Calls For Worldwide Communist Government - Jeff_Berwick
5.EU Referendum Opinion Polls Neck and Neck Despite Operation Fear, Support BrExit Campaign - Nadeem_Walayat
6.David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - Mike Gleason
7.British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - Nadeem_Walayat
8.Gold Price Possible $200 Rally - Bob_Loukas
9.The Federal Reserve is Not Going To Raise Interest Rates and Destroy Gold - Michael_Swanson
10.Silver Miners’ Q1’ 2016 Fundamentals - Zeal_LLC
Free Silver
Last 7 days
EU Referendum - British People vs Establishment Elite, Vote LEAVE an Act of Defiance! - 31st May 16
Gold - Mr. Cool Cucumber is starting to Sweat - 31st May 16
AMAT Chirps, b2b Ramps, Yellen Hawks and Gold’s Fundamentals Erode - 31st May 16
Stock Market Re-Testing Overhead Resistance - 30th May 16
David Cameron Questioned on Out of Control Immigration at TEN TIMES Conservative Election Pledges - 30th May 16
Bitcoin Price Skyrockets And Is Now Up More Than 100% This Jubilee Year - 30th May 16
This Is Not The America My Parents Immigrated To In 1957 - 30th May 16
“Debt, Not The Economy, Reaches Escape Velocity” With Graham Mehl - 29th May 16
EU Referendum, Black Vote LEAVE or REMAIN? Which is Worse for Racism for Britain's Ethnic Minorities? - 29th May 16
Billionaire Gross: Jubilee Debt Relief as Prelude to New Global Economic Order - 29th May 16
Wargaming North Korea - Assessing the Threat - 29th May 16
EU REMAIN Population Forecasts - England 4.1 million Explosion, London Migration Crisis - 28th May 16
A Guide to the Trump-Sanders Debate - 28th May 16
Gold And Silver – At Significant Support. New “Story” Developing - 28th May 16
The Next Systemic Lehman Event - New Scheiss Dollar & Gold Trade Standard - 27th May 16
Energy and Debt Crisis Point to Much Higher Silver, Metals Prices - 27th May 16
Gold Junior Stocks Q1 2016 Fundamentals - 27th May 16
These Crisis Markets Are Primed to Deliver Big Gains, Platinum Never Cheaper! - 27th May 16
Operation Black Vote BrExit Warning for the Wrong EU Referendum - 27th May 16
UK Immigration Crisis Hits New Extreme, Catastrophic ONS Migration Stats Ahead of EU Referendum - 27th May 16
Many of the World’s Best Investors Made Their Fortunes This Way…And You Can Too - 27th May 16
The Ugly Truth About Stock Market Manipulation and Gold Prices - 27th May 16
Gold Price Looking Vulnerable While Gold Stocks Correct - 27th May 16
The 5 Fatal Flaws of Trading - 27th May 16
The Next Big Crash Of The U.S. Economy Is Coming, Here’s Why - 27th May 16
A New Golden Bull or Has the Market Gone Too Far Too Fast? - 27th May 16
It Feels Like Inflation - 26th May 16
Negative Interest Rates Set to Propel the Dow Jones to the Stratosphere? - 26th May 16
S&P Significant Low has Occurred – Not Likely! - 26th May 16
Statistics for Funeral Planning in UK Grave - 26th May 16
Think Beyond Oil And Gold: Interview With Mike 'Mish' Shedlock - 26th May 16
Hard Times and False Mainstream Media Narratives - 26th May 16
Will The Swiss Guarantee 75,000 CHF For Every Family? - 26th May 16
Is There A Stocks Bear Market in Progress? - 26th May 16
Billionaires Are Wrong on Gold - 26th May 16
How NOT to Invest in the Gold Market - 26th May 16
The Black Swan Spotter...Which Saw the Oil-Crash coming; now says the “Invisible Hand” will push Brent to $85 by Christmas - 26th May 16
U.S. Household Debt Still Below 2008 Peak - 25th May 16
Brexit: Wrong Discussion, Wrong People, Wrong Arguments - 25th May 16
SPX is at Strong Resistance - 25th May 16
US Dollar, Back From the Grave? - 25th May 16
Gold : Just the Facts Ma’am - 25th May 16
The Worst Urban Crisis in History Could be Upon Us - 24th May 16
Death Crosses Across The Board Are IRREFUTABLE Stock Market Sell Signals - 24th May 16
Bitcoin Trading Alert: Bitcoin Price Stays below $450 - 24th May 16
Stock Market Crash Death Cross Doom Prevails - 23rd May 16
Did AMAT Chirp? Implications for the Economy and Gold - 23rd May 16
Stocks Extended Their Rebound On Friday - Will They Continue Higher? - 23rd May 16
UK Treasury Propaganda Warns of 3.6% Brexit Recession, the £64 Billion Question? - 23rd May 16
Stock Market Support Breached, But Not Broken! - 23rd May 16
George Osborne Warns of 18% Cheaper House Prices - BrExit for First Time Buyers - 22nd May 16
Gold Bull-Phase I Continues to Confound (The Trek to “Known Values”) - 22nd May 16 r
Avoiding a War in Space - 22nd May 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

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

© 2005-2016 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