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5 "Tells" that the Stock Markets Are About to Reverse

Trump’s Iran-Decision Did-not and Won’t Affect Oil Prices

Commodities / Crude Oil May 12, 2018 - 03:10 PM GMT

By: Andrew_Butter

Commodities

:Unless U.S.A. decides to go to War to Impress Stormy Daniels.

  • By some reports, President Trump’s Iran-decision caused oil prices to “jump 3%”. Actually that was intra-day; the change day-on-day was 1.7%. The probability the mini-jump was not caused by the announcement is 59%; since the null-hypothesis needs less than 5% to be called “statistically-significant”, that’s not.  The probability is 86% if you do four-day changes, i.e. even less probable.
  •  The day after Benjamin Netanyahu made his presentation on Iran, oil prices dropped 2.8%; which, intriguingly, is “statistically significant” (P>[t]=0.0438*); perhaps  the markets’ take; was that they figured the likelihood of an interruption in Iranian oil supplies, or a war, was less likely, after they heard the presentation?

  • The fact of the matter is that U.S. never got close to lifting sanctions on Iran. Yes they nominally allowed trade of a few things, almonds for example, but they kept the payment systems blocked. Right or wrong, unless The President is seriously contemplating a Bush-Style adventure in the Middle East, the decision to leave JCPOA will have little effect on anything, except U.S. relations with other world-powers.
  • So far, the markets do not appear to be betting on war, perhaps they suspect The President is simply seeking attention, nothing new there, but why now? Some commentators have suggested he’s trying to deflect attention from Stormy Daniels & Co, which sounds far-fetched but that type of behavior is a common trait of narcissists.  
  • Let’s hope not, because as the probes get closer to the bone, the temptation to find an even bigger distraction may prove irresistible. If there is a war, global oil supplies will likely drop by 30 Million Barrels per day (28%), unless a way is found to neutralize Iran’s SUNBURN anti-ship missiles; which can reach the SPM’s in Fujairah.
  • Clear-heads might argue that risk is hardly worth the brinkmanship or bravado, particularly on an idea that appears to have been even less well thought-through than the immigration fiasco, The Wall, or (allegedly) sending a thug to physically intimidate Stormy Daniels.

I live and work in the Middle East, in oil & gas. I like to think I am quite well-informed, but I didn’t even know that the U.S. sanctions against Iran had been lifted. I checked, in 2017 EU exported one-hundred-times more goods and services to Iran than U.S.A. The reason is partly because of “covert” sanctions.

By way of example, I help finance building jack-up-barges. Those things have nothing to do with anything military or nuclear; they provide a stable work platform for brown-field oil-and-gas, much safer than a DP-2. Many suppliers offer three-to-five years credit, not just on the kit, on the whole boat, if you buy their equipment. It’s tough to get bankers to crawl out of under the table these days, so that’s important.  And at least that way you get to talk to professionals, all bankers want to talk about these days is how to offload the “assets” they got lumbered with, from bad loans they made prior to 2015.

For U.S. equipment, always a favored choice for the critical-parts; there was; and still is, one non negotiable condition, written in the agreement. They would monitor the AIS on our vessel after it was built, and pull the irrevocable standby letter of credit (SLC) guaranteeing the loan (tied to the lien), if we strayed one nautical-mile over the line down the middle of the Arabian Gulf, even by accident.

It’s a bit tough to abide by that rule sailing past the north of Qatar these days, go too close and the coastguard board, checks all your paperwork,  and warns you off (had that happen yesterday), go too far and you get the same treatment with the Iranian coastguard, except they ask you to cook them a three-course lunch, and then they “confiscate” the lap-tops on the bridge, and anything else not bolted-down that they fancy, like binoculars and chocolates. And you say, ever so politely;  “thank you very much”

The people doing business in Iran are mainly European, Chinese and Indian companies; allegedly, I’m not an expert; I don’t know them and I don’t talk to them; cross my heart! Not even in bars, well perhaps, once or twice, but I can honestly swear that I don’t remember any details.

You have to make a choice; me I’m firmly on the side of America-be-Great-Again, like it was when Jimmy Carter was in charge, and the word “ethics” meant something. But rumor has it that many companies that went into Iran, won’t stop because U.S. withdrew from the deal, why should they, nothing changed.

 Unless U.S. manages to pressurize their governments with threats of sanctions; which looks increasingly unlikely; apart from Airbus and VW, who will have to comply, but that won’t hurt Iran, COMAC would love to sell their C919, and Peugeot, who has been in Iran for years, and is the dominant player; doesn’t even sell to U.S.A.  And there are plenty of EU companies now operating in Iran who don’t care, so long as they are provided protection, as they were when U.S.A. unilaterally slapped sanctions on Libya, example TOTAL and SAIPEM.

With regard to oil, the main buyers now are EU and China, which produced 4.8 Million Barrels per Day (MBPD) in 2017, and consumed 12.8 MBPD; currently Iran sells them 0.5 MBPD, but it’s not hard to imagine they could take everything Iran could pump, for a small consideration on price; and prices are going up.

TOTAL is heavily into Qatar and Iran, they made a choice;  SAIPEM made a choice between ARAMCO and Iran, so now Dynamic Industries and Subsea7 are lining up for the work that SAIPEM left behind. ARAMCO are spending big, they understand what’s round the corner, but if Iran is closed-down they won’t let SAIPEM back in. You make a choice, they made their choice.

Only last month Boris Johnson was dreaming Technicolor about the great trade deals a liberated post-Brexit-Britain could strike with U.S.A; thanks to the special relationship that Mr. Churchill forged, the one where the Brits paid U.S.A. list-price for all the armaments they bought, and went hugely in to debt, and the Russians got theirs for free;  fair-enough, the Russians killed nine out of ten German soldiers killed in the war; a fact that the romantic Brexiteers fondly forget; we killed more civilians than soldiers; thanks to Bomber Harris.

In his latest address to the House, Boris was prepared to trash that idea as quickly as he forgot about the NHS-Bus; attacking the hand-that-feeds; risking sanctions on U.K. companies who dare to defy the U.S. line. Which is hardly a great step forwards in a budding trading partnership designed to kick-start a special relationship.

Of course politics is like religion, best not mentioned when travelling far from home; and then there are lies, damn lies, fake-news, and statistics; let’s run the numbers:



By some reports, President Trump’s decision on Iran caused oil prices to “jump 3%”. Actually that was intra-day; the change day-on-day was 1.7%. Since early February, sixty-trading-days ago, oil prices jumped more than 1.7% day-on-day; on fourteen-occasions. Overall the price went up 22%, so more-likely the jumps are part of a trend and are not Machiavellian, and in any case, that looks suspiciously like a rising-wedge building.

 The day after Benjamin Netanyahu made his presentation about Iran’s activities and intentions prior to 2015, oil prices dropped 2.8%. Perhaps markets were unhappy to learn Iran is not doing now; what they were doing prior to the treaty, thus the chances of an interruption in supplies is lower than markets previously thought?

I tested the probability that the reaction by the market to the announcements could equally have been by chance, using dummy variables (1 or 0) for the day of the announcement, along with the number of days after 2nd February, and the oil price, as alternate explanatory variables:



Translating that into English, the probability something other than Trump’s announcement caused the 1.7% jump in the price of Brent, is 57.98%. To be able to say with a degree of confidence that the announcement might likely have caused that jump, the probability would need to be less than 5%; in other words, there is no statistical evidence that Trump affected the market in any way.

For Netanyahu’s presentation, when he outlined all the bad things the Iranians were doing before they saw sense and signed the treaty, the probability is 4.53%, which is commonly regarded as “statistically significant”. What that says is the markets might have thought that the treaty caused the Iranians to clean up their act, and trade dreams of another holocaust, for the money they could make pumping oil.

Do the same analysis for price changes over four-days, and the probability get’s less. In other words, what the market appears to think is that Netanyahu proved that the treaty was a good thing for stability in the world, which is of course bad for oil prices; but they saw President Trump’s announcement as irrelevant to oil prices, as if all he was achieving was attention, which is something we all know he loves.

Of course if President Trump had plans to go to war with Iran, on account of all the bad things they were thinking, prior to signing the treaty; that would be another story. He hasn’t said that, and so far the markets don’t appear to think he’s going to.

But perhaps Trump had another agenda? Perhaps he was trying to deflect attention from the threats from Stormy Daniels & Co? 

https://www.realclearpolitics.com/video/2018/05/09/mika_brzezinski_did_trump_quit_iran_deal_to_deflect_from_stormy_daniels.html

Perhaps if those get closer to the bone, he may decide to do about the only thing a U.S. President, has the power to do, without any constraint from pesky tree-huggers or communists, which is go to war.

Let’s pray that the innocent-looking Adult-film-star can get over the dreadful memories of one night’s encounter with the now President of the United States of America, many years ago; and move on.

Meanwhile, clear-heads may be wondering whether Trumps’ plan was any more carefully thought through, that his attempt to keep Muslims out of the country, which got thrown out of court on at least two occasions, the Wall idea, Climate Change, Obamacare; or the clumsy attempt to buy the silence of Stormy Daniels, and then (allegedly) send a thug to physically intimidate her.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe. Ex-Toxic-Asset assembly-line worker; lives in Dubai.

© 2018 Copyright Andrew Butter- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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