Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Crude Oil Prices Spike as Iraq Chaos Takes Hold

Commodities / Crude Oil Jun 18, 2014 - 07:38 AM GMT

By: Money_Morning

Commodities

Dr. Kent Moors writes: First there was the crisis in Ukraine. Then seemingly out of nowhere, Iraq exploded into chaos again.

Both testify to one simple truth about today’s energy sector: Geopolitical factors are the quintessential wild cards when it comes to estimating energy prices.


As for crude, prices have been subdued both yesterday and this morning following a crisis-related spike. But with two full-blown crises now looming, you can bet that’s not going to last.

Oil prices are now likely headed higher.

In this case, supply and demand only works in the textbooks. These days, geopolitical events can quickly outdistance the “market-only” factors.

That’s especially true in Iraq, where ISIL insurgents are still on the move…

The Dangerous “Balance” in Iraq

Of the two crises, this is the one that concerns Americans the most. It may be only 275, but troops are moving back to Iraq.

On top of that, Washington is going to start consultations with Tehran. The entire region – from Riyadh in Saudi Arabia, through Amman in Jordan, to Ankara in Turkey – is in turmoil following the Sunni insurgency.

But when it comes to the impact this crisis has on oil prices, this is one of those classic cases where the unfolding events have more to do with perceptions than reality. So far, the fighting does not affect oil production or export routes.

Northern oil, accounting for about 20% of all national extraction, is centered around Kirkuk with the export venue being a major pipeline system to Ceyhan in Southeastern Turkey. This area is now controlled by the semi-autonomous Kurdistan Regional Government (KRG) in Erbil and its very effective militia (the peshmerga).

The absolute majority of Iraqi oil comes from the south. To the extent that ISIL (the Islamic State of Iraq and the Levant) has Baghdad as its objective, the southern oil fields are not in danger.

ISIL is a Sunni uprising in what is a Shiite dominated country. The southern region centered around Basra is heavily Shia and becoming closer with each passing day to neighboring Iran, also a Shiite country.

The south also has its own militia and they will present major problems to any further ISIL advance. In addition, there have been reliable reports over the past few days that detachments of the Iranian Revolutionary Guard and other “volunteers” have been moving into Southern Iraq.

Just yesterday it appears an Iranian general arrived in Basra to assist in the coordination of Shiite defenses for the area. The reality of what is happening on the ground will dictate that Washington bow to the inevitable and accede to some enhanced Iranian presence.

The Sunni Insurgency and Oil Prices

This will initiate the first of three factors that will impact global oil prices. And you won’t need to have the uprising take over oil fields for this to have an effect.

First, the Iranian moves and what will now be an intensifying drive for outright independence in northern Kurdistan run the risk of trifurcating the country along ethnic and religious lines – Kurds controlling the far north, Sunnis the central portion of the country and Shiites the south.

Second, Abu Bakr al-Baghdadi has proclaimed the objective of his ISIL uprising is to unseat the Shiite government of Prime Minister Nouri al-Malaki. That objective is actually shared by the KRG, Turkey, and other elements in the region. Yet, paralyzing the government in the capital city would create significant problems for both the production and export of oil. There would be no administrative structure, no reliable regulatory oversight, and a rising inability for operating companies to budget and plan.

Of course, the other ISIL goal of setting up a Sharia (Islamic religious law) caliphate on the border between Iraq and Syria would fundamentally shatter any possible stability in the entire Gulf.

Third, should any of the international majors working in southern Iraq reduce or suspend field operations in the wake of all this uncertainty, the knock on effects on wider oil prices would well exceed the actual loss of production.

Remember, we are moving into an environment in which perception is more important than reality. In normal times, a trader determines the price of an oil consignment on the expected price of the next available barrel. In uncertain times, that level is determined by the expected price of the most expensive next available barrel.

Oil prices will rise beyond what the market really justifies, and then take a breather, to start rising again in the absence of any resolution of the crisis at hand.

Not One…But Two Full-Blown Crises

Meanwhile, in Ukraine, Russian natural gas dominant Gazprom (OTC: OGZPY) has cut off exports to the country while pledging to keep flow across Ukraine to Europe intact.

This will begin having a major impact as we move closer to September. Currently, European demand is low as summer sets in and Ukrainian underground storage facilities have ample supply to meet reduced need at home.

That will change as fall arrives. Kiev said yesterday that it had enough gas to last until December but that does not address the need to pump supply into storage wells before that.

As this energy problem deepens, there is widespread belief that Ukraine will begin siphoning off throughput bound for Europe for its own use. The real crunch, therefore, is several months away.

And Europeans remember all too clearly two weeks of freezing during a dreadful winter in 2009, the last time Russian gas was interrupted crossing Ukraine. The European Union has been successful in diversifying its supply sources since then, and now only relies on Ukrainian throughput for just 15% of what it needs on a daily basis.

Still, the possibility of another interruption of that delivery obliges Europe to rebalance its delivery venues now. The Nord Stream pipeline from Northern Russia to Northern Germany via the Baltic Sea floor is uninterrupted. But the rising political animosity between Brussels (the seat of the EU as well as NATO) and Moscow will add some pressure even though there is no indication long-term contracts are likely to be impaired.

Additional consignments of liquefied natural gas (LNG) from Qatar and North Africa are possible, although the latter is always subject to the vicissitudes of a morphing Arab Spring. So Europe has to balance its rising distrust of Russian intentions with its own energy requirements.

Longer-term solutions involve LNG deliveries from the U.S. and development of domestic shale gas. However, American deliveries are at least eighteen months away while local shale gas supplies are further down the road and still must face major political opposition and technical challenges.

But make no mistake. Neither the Ukrainian nor the Iraqi crisis is going to be a short-lived event. Both Kiev and Baghdad will emerge as significantly weakened seats of government.

All of which makes the period we are moving into a very chaotic one for oil prices.

Source : http://oilandenergyinvestor.com/2014/06/oil-prices-spike-chaos-takes-hold/

Money Morning/The Money Map Report

©2014 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

© 2005-2018 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

6 Critical Money Making Rules