There’s nothing quite like a looming war in the Middle East to turn conventional energy and resource investment wisdom on its head.
On that, there’s a famous story about American publisher William Randolph Hearst, from 1898 or so.
I don’t know if it’s true, but if not, it ought to be…
Back then, Hearst wanted to inflame public opinion against the Spanish. It was, in historical context, the lead-up to the Spanish-American War. Hearst wanted “proof” of Spanish mistreatment of the poor, oppressed people of Cuba.
The problem was Hearst’s reporters in Cuba couldn’t find anything too far amiss. Cuba was a colonial outpost full of misery and squalor. But then, much of the world was a miserable, squalid place. Spanish Cuba was no big deal, as these things go. So at one point, Hearst is supposed to have said to one of his Cuban correspondents, “You give me the pictures, and I’ll give you the war.”
I’ll get to the “investment” angle on this in a moment.
But for now, bear with me. I’m thinking about Hearst and his brand of fake, inflammatory journalism as I read headlines about so-called “chemical attacks” in Syria, supposedly by the dictatorial, oppressive government against its oppressed, revolutionary population.
Now we have photos in newspapers showing dead people wrapped in sheets, supposedly killed by chemical warfare (CW). But the same photos also show mourning relatives weeping over the bodies, and nobody is dressed up in CW-protective clothing. Huh?
Excuse me, but if you told me to approach the body of somebody who died from CW, I wouldn’t go near it unless I was dolled up in a rubber suit, heavy gloves, gas mask, etc. I’d look like Walter White cooking meth in Breaking Bad.
Excuse me again, but it seems like the U.S. is getting “played” here — by whom, I can only speculate among a host of awful players who collectively wish us ill. The usual suspects, and then some.
Somehow, after two years of civil war in Syria, with over 100,000 dead in an internal conflict that does NOT affect vital U.S. national interests, the alleged use of CW — not truly proven — has become a casus belli (Latin, again). Huh? This is nuts. This is utterly bizarre.
Really… we don’t have enough money to spend on domestic programs, but the U.S. is now the world’s policeman again? According to news accounts, U.S. ships and airplanes are moving into position to bomb Syria. Oh, wait. I mean “NATO” ships and airplanes — not that, say, Britain and France can do much after cutting their respective military forces to the bone. Still, it’s the thought that counts, right?
And there’s more. According to Obama administration officials, the impending war on Syria isn’t scheduled to start for another day or two. And it’ll last three days or so, just like clockwork. And we’ll hit only a few targets, which we have conveniently pre-identified for the Syrians. How punitive. How tidy. How totally fake!
Even if the U.S./NATO is going to wage war, is this how you do it? Do you telegraph your moves days ahead of time? I must have missed that class when I studied at the Naval War College.
By comparison, little E-1 Pvt. Bradley Manning (or is it Chelsea?) will rot for many decades in prison (the women’s wing?) after being convicted of releasing a pile of classified emails. And young Ed Snowden is a hunted man because he told the world that the National Security Agency sucks signals out of the ether. I’m shocked to know that!
But Obama administration officials are holding press conferences — Press! Conferences! — to offer up the tactical details of any attack that’s set to hit Syria. You’ve gotta be kidding me! This world is going nuts. Who is making policy?
The Big Economic Hit
Think this through investmentwise. Let’s just look at the economic hit from oil. There’s a war scare out there, driving oil prices up by, say, $20 per barrel. Apply that to the 100 million or so barrels of oil that the world uses every day.
That’s $2 billion “extra” that the global economy is paying every day out of consumers’ pockets to oil producers — including U.S. oil pumpers, I should add. That’s about $14 billion “extra” per week. It’s about $60 billion per month tacked onto the world economy in the form of higher energy costs.
That’s not all. Last week, Canada’s Financial Post discussed even higher oil prices. One smart forecasting shop — the French group Societe Generale — believes that Brent crude could rise to $150 a barrel if the conflict in Syria spreads to other parts of the Middle East, causing supply cuts. Just to remind you, Brent traded over $147 in July 2008 — right before the big market crash in the fall.
So this war scare is costing the world a lot of money, even before the first “NATO” bomb falls on Syria (or the first Syrian or Iranian rocket falls on Israel).
If all of this spikes energy prices to $150 per barrel or so, the result could be a replay of the 2008 market crash, if you like historical comparisons. Just what we need.
And all of these strange goings-on are based on flimsy evidence of CW in Syria — not that we outsiders need to care about how the Syrian government massacres more of its own people. I mean… Syria is tragic in its own way, but not “our problem” — not more than it’s a problem for neighboring Turkey or Iraq; let ‘em deal with it if it’s so important.
And now, with all of this in mind, let’s return to energy and other resource investing. Prices for oil, gold, silver, etc. are moving because of… this kind of news?
A Month of Rising Prices
Tempus fugit, as some Roman guy once wrote — in Latin, no less. (“Time flies,” if you’re too lazy to look it up.) It seems like only yesterday, in early summer we collectively lamented then-low prices for energy, gold, silver and more. That, and we discussed how big-name share prices and major indexes were “priced for perfection.” But what a difference a month makes! Beware perfection, eh?
Sticking with crude, oil is now $15-20 per barrel more expensive than in June. The price rise includes worrisome supply issues (see below) coupled with the new “Middle East war premium,” mostly made in the USA, if I may offer such a scandalous opinion.
Pricewise, just last week West Texas Intermediate (WTI) crude traded above $110 per barrel. Overseas, Brent crude oil was moving at $115 and more. These are nosebleed levels, by recent comparison.
Again and again, I’ve mentioned how fortunate we are in the U.S. to be living with the fracking revolution of recent years — the past five years or so. I can only imagine how hosed up the global energy scene would be absent that extra couple million barrels per day coming out of U.S. and Canadian wells. Whew!
But things are not going smooth elsewhere. The rest of the world has issues. For example, Libyan oil output has been reduced to a near trickle after an armed group shut down a major pipeline linking that country’s largest western oil fields to the export terminals.
You didn’t read about the Libyan mess in the mainstream press, I suspect. Our Western media were too busy gawking at the new and improved Hannah Montana, or whatever her name is.
The fact is as of last week, total Libyan oil output amounts to just under 200,000 barrels per day (bpd) as compared with prewar (i.e., pre-2011) levels of around 1.6 million bpd, according to a Reuters estimate. That’s the daily equivalent of world markets losing about three Alaska Pipelines. Anybody have any spare Alaska Pipelines? No, I didn’t think so.
According to Olivier Jakob of the Swiss energy consulting firm PetroMatrix GmbH, “While the headlines are currently on Syria and the speculative extrapolations about the Suez Canal, the Gulf of Iskenderun or the Strait of Hormuz, there is currently a supply disruption in Libya as real as in 2011.” This situation will not rectify quickly, I suspect.
Investmentwise, this will add more cash to the balance sheets of well-run American oil players. The fracking revolution is a game changer, to the benefit of U.S. companies. Whether it’s chemicals in Syria or supply disruptions in Lybia, the higher price of oil is benefiting U.S. producers.
That’s all for now. I’ll be back with you soon, after the bombs fall in Syria… or not.
Thank you for reading. Best wishes…
Byron W. KingOriginal article posted on Daily Resource Hunter
The price of oil is rising lately, due to “events in Egypt,” as the saying goes. Well, yes. Despite being home to modest oil output with zero net oil exports, Egypt owns the Suez Canal. Thus, disruptive events in Egypt can move oil prices, at least in the short term while oil operators reroute large […]
Byron King is the managing editor of Outstanding Investments and Energy & Scarcity Investor. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.
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