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What War With Iran Would Mean For Oil Stocks at Trader’s Narrative





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With increased chatter that a US attack on Iran is imminent, oil has been on a tear. And today’s release of government data showing that supplies dropped by 7 M barrels propelled the futures above $80 on the Merc.

In case you’re keeping track, that is the highest price that oil has ever traded (for the one month out contract).

If there is an attack on Iran, it will not be an occupation but similar to the “shock and awe” we witnessed on our TV screens at the onset of the Iraq war. However, attacking Iran will have totally different consequences for the oil market.

That’s because of a geological bottleneck called the Straight of Hormuz. A war would in effect close this “valve” and shut off access to the Persian Gulf for oil tankers.

I have no idea whether war is coming or not. The only thing in my power is to estimate the probable consequences. It isn’t difficult to imagine oil reaching +$100/bl. Which will send oil stocks like Halliburton (HAL), Valero (VLO), Diamond Offshore (DO) and everyone’s favourite: Energy Select Sector SPDR ETF (XLE) to the stratosphere.

In August I wrote about a rare occurrence in the energy sector. The bullish percent index reached an unheard of 13.92% on August 17th, 2007. The BP index had only only reached below 20% 8 times before in the past 10+ years. Each time, as you’ve guessed, was an amazing time to load up on oil stocks.

energy sector rally after BP index low

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6 Responses to “What War With Iran Would Mean For Oil Stocks”  

  1. 1 Shepard

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    Ouch….$100 plus a barrel will hurt some people that’s for sure. I wonder how the US economy will do IF (if) that happens. Not that I care for Iran in the least, but woof…I sure there’s a way to talk everyone off the ledge if (if) it does come to blows.

    /~Keith

  2. 2 Shepard

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    Hmmm…I guess there’s always a good side to $100 barrel oil:

    ———8

  3. 3 Shepard

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    Oops…my post was cut off…

    Rising Gasoline Prices Could Take A Bite Out Of America’s Obesity Epidemic, Study Suggests

    Just as rising gasoline prices are forcing many Americans to tighten their financial belts, new research suggests higher fuel costs may come with a related silver lining — trimmer waistlines.

    “An additional $1 in real gasoline prices would reduce obesity in the U.S. by 15 percent after three years,” suggests Charles Courtemanche, an economics researcher at Washington University in St. Louis.

    Higher gas prices could result in trimmer waistlines, suggests a WUSTL researcher.

    “In fact, about 13 percent of the rise in obesity between 1979 and 2004 can be attributed to falling real gas prices during the period.”

    http://www.sciencedaily.com/releases/2007/09/070912093556.htm

  4. 4 LP

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    Shepard…is that from theonion.com?

    I really hope that we don’t go attacking other countries any more. Tired of wars…we need some freakin peace around here. The genius we have in office still can’t find Usama. And I would hate to Iran wind up like Iraq. Though I think the Iranians have more intellect to let that happen.

  5. 5 Shepard

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    Hah! :) Actually, it’s not. It’s a serious study on sciencedaily.com, and I agree with you: I’m tired of wars and attacking people also. There must be some other method of resolution besides talking (never works) and bombing (works, but takes too long).

    /~Keith

  6. 6 Babak

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    Shepard, lol, that article sounded a bit wonky but interesting nevertheless.

    LP, I’m with you there. Violence begets violence. How long will we go on without learning from past mistakes?

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