Who would have believed or thought that oil would have such a bumpy ride in recent months?
Just a few month ago, traders were talking of support levels at US$60 per barrel, then US$40, and then US$30 was the new big number.
There is a way of putting 1 +1 together and predicting the future the oil price.
Doom and Gloom for producers
‘US$27.83 per barrel’, this was the price reached by Brent Crude on 20th January.
This spells doom and gloom for the majority of oil producers around the world.
Most producer countries rely heavily on oil as their major source of revenue in their fiscal.
The price needed to balance their national budget reads like a horror story at recent levels around US$38. With most above US$40 countries but Libya at a crazy US$180.
If these statistic can be trusted, it opens up the question of how can these countries maintain supply at current prices and how long can they maintain this supply?
The cost of production for countries not listed above:
United Kingdom – US$52 per barrel
Brazil – US$49
Canada – US$41
USA – US$36 reducing to US$30
The Geopolitical power play over a pipeline
The fragile cease-fire in Syria brokered by Russia is another smart strategic move by President Putin in a ‘world war’ fought over a pipeline.
To understand this it will be helpful to know about the main players.
Shi’ite Muslims run the governments of Iran, Iraq, Syria and Lebanon. The Sunni Muslims control the countries of Turkey, Saudi Arabia, Qatar, Jordan and UAE.
Both these groups want to build their own pipeline to Europe and both need to build this pipeline through Syria. (Have you ever wondered why there are so many foreigners involved in the Syrian ‘civil’ war?)
There are many outside interests involved, with Russia and China backing the Shi’ites and the USA backing their old friends, the Sunni Saudi Arabia.
A major reason and in my opinion the only reason for the low oil price is USA’s geopolitical goal of isolating Russia by clearly gunning for Russia’s key revenue earner, oil and gas.
Russia is the largest supplier of oil and gas to Europe and with this comes the power over the Europeans especially if they manipulate supply.
To neutralise this power play the USA has backed the Qatar-Turkey-Saudi pipeline.
Russia (and China) are the only countries that can stand up to the USA’s international meddling and there is a lot at stake here. Wealth, prestige and power!
To sum up, the USA are and have backed ISIS, also backed by Turkey and Saudi Arabia as their proxy in this battle to supplying Europe with oil. This strategy has failed and this is where the battle becomes interesting.
The ball is on the Russia side and they have all the trump cards.
The current cease-fire in Syria eases the pressure on the ‘Russia led alliance’ (Russia, Syria, Lebanon and Iran) to battle on many fronts against a multitude of enemies and opens the way to further ‘put the nail in the coffin’ of ISIS.
Will the US simply pack up and leave the region with their tail between their legs – I doubt.
The playing fields will shift to the South China Sea and the Ukraine, diverting attention from the lost cause in Syria.
Set up your trade the minute you hear war drums rolling
I believe the geopolitical (WAR) turmoil is heading our way.
In the world of the famous commodities trader Jim Rogers, “Wars start when bureaucrats make mistakes and then other bureaucrats react to those mistakes and then next thing you know, you have eight or ten bureaucrats sending 18 year old kids to kill each other, and it’s very worrisome what’s happening.”
‘Having said that, war is not good for anything, anything at all, except commodities.
I’m not going to say buy commodities because you don’t want to start a war, but if there’s going to be a war, it usually means commodity prices go higher.’
History has a knack of repeating itself.
The reasons being that the art of waging war is a recipe served on a platter for those seeking power.
Squeeze a countries economy until the only alternative is war, civil, between bordering countries or world war.
War will happen and if this war is oil related, we can look back in history and determine the effect on the oil price.
If we take history as a guide then the expected oil price should appreciate on average 50% in the near future.
Giving the current price at US$38, my expected target price is close to US$60 per barrel of oil.
3 easy ways that you benefit from the rising oil price
Trade Idea #1. Buy Equity
Buy the JSE listed oil exchange traded note SBAOIL between R9 and R10 with a target of R15
Trade Idea #2. Go long the SOL CFD
Buy the Sasol (SOL) CFD around R440 with target R640
Trade Idea #3. Look offshore using your FX account
Buy the Brent Oil Spot CFD between US$35 and 38 target US$60s
As there are several trading options, I am more than happy to explain how the instrument works and hope to set-up the correct trading account, as well as the risk attached to each trading products. All you need to do is send me a mail.
Here’s to profitable trading,
Private Client Trader | Vunani Private Clients