I’m Fed Up With This Crap…
So far, the Summer of 2014 is turning out to be a repeat of last year…
As you may remember, West Texas Intermediate (WTI) crude surged to $108 a barrel in July 2013 before spiking to $112 in August. At the time, the despicable situation in Syria had investors sitting on the edge of their seats.
This time around it’s Iraq…
As you’ve likely heard, violence is once again consuming the already war-torn Middle Eastern country. A strong uprising by the Islamic State in Iraq and al-Sham (ISIS), an Al-Qaeda linked terror group, is threatening to throw the entire country into civil war.
The violent rebels have already overtaken Northern Iraqi cities, including Tikrit and Mosul.
Clearly, this is a huge problem since the US spent over $700 billion and lost nearly 5,000 military personnel in the Iraq war of 2003-2011.
Personally, I’m fed up with this Middle East nonsense. It’s extremely frustrating to see Iraq spiraling into chaos after the time, money, and lives the US has sacrificed there. President Obama made a huge mistake by pulling US troops out of Iraq too quickly.
But I digress…
What has energy investors really concerned is the possibility of ISIS overtaking and shutting down important Iraqi oil terminals.
In case you’re unaware, Iraq produces around 3.5 million barrels of oil a day. If any of the country’s production goes offline, it will be another huge black eye for the global oil market. It’s important to note that energy investors are already pricing in production shortages from Libya.
What would an Iraqi production drop do to crude prices?
It doesn’t take a rocket scientist to realize that both WTI and Brent (the European crude benchmark) would trade much higher in such a scenario. In fact, WTI has already gained $2 a barrel on the news while Brent has popped nearly $5 since the crisis arose on June 12th.
If the worst does come to fruition and ISIS rebels capture important oil facilities, it’s not out of the realm of possibility to see WTI trade to $120 and Brent to $130.
But let’s not get ahead of ourselves…
The lion’s share of Iraqi production comes from the southern part of the country near Basra. As of now, ISIS is still a considerable distance from this highly important oil-producing zone. And given the importance of the region to global energy production, it’s unlikely they’ll ever get that far.
Bottom line…
As long as Iraq remains in turmoil, the price of oil will remain under bullish investors’ control. Obviously, it’s impossible to know how the situation will pan out, but I’m betting oil stays well over $105 a barrel for the next few months.
As a result, the oil exploration and production industry should see earnings come in quite strong in Q2 and Q3.
How can you capitalize on this trend?
Subscribers to my flagship options service, the Options Profit Pipeline, added a slew of call options on carefully selected oil producers over the past few weeks. And now, with Iraqi violence sending oil higher, our positions are looking extremely promising.
If you’d like to join us, click here. I have another trade coming out in the very near future!
Until Next Time,
Justin Bennett
Category: Commodities
