Bunker Buster
Will US or Russia join the party?
In this report: 3 alternatives to The Straits, IEA monthly report summary/quick takes, Commitment of Traders analysis with our proprietary tool, Hypo A and B for trade charts.
If you are having a tough time of it in the markets, just remember Drukenmiller did this.
Views
The current middle eastern situation is the real deal. WW3 calls. For me, US -then Russian involvement would be the line. Using a little Dalio thinking, what are the order consequences?
Event-Israel attacks Iran and Iran retaliates in kind.
Consequence
Both sides continue slugging it out with missiles and drones, waiting for a tipping catalyst.
US Do get involved and attempt to destroy Iranian nuclear facilities.
Russia move to protect their interests in the nuclear program. Russian scientists work at the underground Iranian facility. Israel has agreed to protect their safety.
We are too far down the line to forecast further at this point now.
How does this translate to energy prices? At each step, we have elevated PERCEIVED risk to energy supply and shipping routes. The trade is less about actual damage and more the pricing in of immediate risks to assets in Iran and transportation routes. There are many intelligent pundits stating that there is no ACTUAL damage to Iranian energy facilities, which may be so, but we are a whisker away from knocking out a large amount.
Added to this, what is also pricing in is the closure of the Straits of Hormuz. Again, a closure has not happened, but regardless, several large oil companies are asking their tankers to hold outside The Straits until their actual docking scheduled time. This in itself is a large and real component holding prices elevated.
Thanks to Kplr for the animation of real-time traffic in The Straits.
Net Net-This is the type of market price action that can annihilate your account. Smart money will be hedged with direction neutral risk, i.e. spread long short.
Last week’s trade section guidance if you missed it.
Articles
All Israeli refinery operations damaged and shut down.
Amid regional conflict, the Strait of Hormuz remains critical oil choke point
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Macro
Israel has had to shut down all refinery operations in the country after they were damaged from Iranian strikes.
More on The Straits of Hormuz.
83% of OPEC-plus’s 6.74 million barrels per day in adjusted spare capacity—defined as oil that can be brought online within 30 days and sustained for at least three months-is concentrated in Middle East Gulf nations whose exports currently transit the Strait of Hormuz. The strait is also a critical choke point for liquefied natural gas (LNG) exports from the region.
3 Routes for Gulf Energy Flows if Hormuz Is Disrupted
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