As Mideast Tensions Soared, Traders Bet On Another Plunge In Oil Prices: Here's Why

Tyler Durden's picture




 

That wasn't supposed to happen. In the not so distant past, a dramatic escalation in tensions between OPEC nations (in this case Iran and Saudi Arabia) would have led to a spike in crude oil prices. However, as futures opened Sunday night, the brief rally in oil prices was met with selling pressure and instead of buying calls, traders loaded up on $30 puts. The oil market's different this time - here's why...

That the rally this time couldn’t be sustained...

 

and worse still, traders piled into Deep OTM Puts...

Shows just how abnormal things are in the oil market.. and as Bloomberg reports,

“When oil supplies were tight, we’ve seen bigger reactions to geopolitical tensions,” Tushar Tarun Bansal, a senior oil analyst in Singapore at industry consultant FGE, said by phone Monday. “Now the price rise has actually been quite muted because the world is in a surplus situation.”

 

There was little more than a blip in crude futures when Saudi Arabia severed diplomatic ties with Iran, as investors focused instead on record stockpiles and rising supply. As Kuwait and the United Arab Emirates lined up to support Riyadh, the internal divisions that prevented the Organization of Petroleum Exporting Countries from making production cuts even as prices plunged to an 11-year low appeared more entrenched than ever.

Simply put, the dispute entrenches the biggest bearish factor in the oil market in the past year -- OPEC’s decision to keep pumping amid falling prices.

Saudi Arabia and Iran are the largest and fifth-biggest producers in OPEC, respectively. Their worsening relations make it even less likely the group could overcome internal differences and agree to an oil-output cut to boost prices, Macquarie said.

“When you see an escalation of this sort -- which is sectarian in nature and involves the broader OPEC group -- it just makes things even more difficult,” Virendra Chauhan, a Singapore-based oil analyst at consultant Energy Aspects Ltd., said by phone. The organization is now “less likely to come to some kind of broader output cut,” he said.

So in the new "good news is bad news" normal, Middle-East tensions are worst news for crude oil. If Saudi's game was to distract its populace, perhaps it worked, but any hope that tensions would imply a 'war premium' have failed drastically and merely exacerbated the fiscal concerns roiling The Kingdom (and its most feared event - social unrest).

4
Your rating: None Average: 4 (4 votes)
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 01/05/2016 - 09:30 | 6999166 Looney
Looney's picture

There is a simple explanation of “tensions in the Middle East".

There are too many Saudi royals and too few goats.  ;-)

Looney

Tue, 01/05/2016 - 09:38 | 6999201 DeadFred
DeadFred's picture

There are many goats in Syria, maybe that's why they are trying to overthrow Assad. The paranoids thought it was about a gas pipeline.

Tue, 01/05/2016 - 09:54 | 6999266 mtl4
mtl4's picture

Anytime you get too many piling in short, chances are you'll see a short cover rally but I'd suspect it will continue to decline longterm.

Tue, 01/05/2016 - 10:52 | 6999525 Peter Pan
Peter Pan's picture

They can bet all they like on oil plunging to $30 but what they need to know is that at $30 there is an undercurrent of anger, frustration and risk felt by all oil producers which could easily trigger an event that would make a black swan flying overhead to crap itself.

Tue, 01/05/2016 - 11:25 | 6999679 Nobody For President
Nobody For President's picture

Plus one for 'black swan flying overhead to crap itself'.

Tue, 01/05/2016 - 13:43 | 7000691 RiverRoad
RiverRoad's picture

And crap us while it's at it.

Tue, 01/05/2016 - 10:21 | 6999297 FireBrander
FireBrander's picture

U.S. in a Bind as Saudi Actions Test a Durable Alliance

"The United States has usually looked the other way or issued carefully calibrated warnings in human rights reports as the Saudi royal family cracked down on dissent and free speech and allowed its elite to fund Islamic extremists..." – New York Times - Jan. 4, 2016

http://www.nytimes.com/2016/01/05/us/politics/us-struggles-to-explain-al...

~~~~~~~~~~~~~~~~~~~~~~~

ISIS Women and Enforcers in (ISIS's Capital Raqqa) Syria...

“When a (ISIS) Saudi fighter came to ask to marry Dua…He, Abu Soheil Jizrawi, came from a wealthy construction family in Riyadh and promised to transform Dua’s life… he arrived bearing gold for her family. She liked what she saw… He set her up in a spacious apartment with new European kitchen appliances and air-conditioning units in each room… Each morning, Abu Soheil’s servant shopped for them and left bags of meat and produce outside the door.” -  – New York Times – Azadeh Moaveninov Nov 21, 2015

http://www.nytimes.com/2015/11/22/world/middleeast/isis-wives-and-enforc...

 

 

Tue, 01/05/2016 - 11:04 | 6999577 East Indian
East Indian's picture

"came from a wealthy construction family in Riyadh"

 

Sounds familiar. Was the surname bin Ladin?

Tue, 01/05/2016 - 10:27 | 6999416 post turtle saver
post turtle saver's picture

fighting wars costs money, and when your only true source of income is pumping bubblin' crude outta tha ground, you're gonna pump bubblin' crude until you're swimming in it...

Tue, 01/05/2016 - 09:31 | 6999177 ZippyBananaPants
ZippyBananaPants's picture

Oil will spike to $70 when the push starts or pull starts start launching rockets at each other!  

ie. push start (dot head) pull start (towel head).

Tue, 01/05/2016 - 09:31 | 6999178 IridiumRebel
IridiumRebel's picture

1.99 a gallon around here same as it was at 65 a barrel.....not like we are seeing savings.

Tue, 01/05/2016 - 09:35 | 6999194 LawsofPhysics
LawsofPhysics's picture

This is true for every single wage earner in America. It is a fool's errand to talk about "prices" in the absence of true price discovery. In the absence of true price discovery, no one knows what the real value is. It could be anywhere between $0 and infinity...

NO means NO!!!

Tue, 01/05/2016 - 10:03 | 6999301 troubledasset
troubledasset's picture

I am so tired of "Welps it's still $X.XX/gallon around these parts. Looks like the big oil companies are still screwing us. Break out the pitchforks". Why don't you either study the downstream industry and federal/state taxation on refined fuel or go back to reading Drudgereport.

Tue, 01/05/2016 - 10:29 | 6999383 IridiumRebel
IridiumRebel's picture

I do not read Drudge Report, I am too busy graduating from my Master's program for my third degree with honors. Just giving an "on the ground report".

Go back to reading charts betwixt your favorite intermittent porn rub down, fucko.

 

"Definition of Downstream

The downstream stage in the production process involves processing the materials collected during the upstream stage into a finished product. The downstream stage further includes the actual sale of that product to other businesses, governments or private individuals. The type of end user will vary depending on the finished product. Regardless of the industry involved, the downstream process has direct contact with customers through the finished product."

 

http://www.netmba.com/strategy/value-chain/

A quick read:

Downstream supply chain will be assumed to consist of:

  • outbound logistics – the storing and distribution of finished goods.
  • marketing and sales – identifying customer needs and generating sales.
  • services.

Clearly, the above helps to regulate the price structure, but that does not mean that economic chicanery does not occur for the benefit of the profit margin.

 

Got it.

 

Now excuse me as I go drink me sum mor Butt Lite and Pizza.

Can you hear the mouth breathing?

Tue, 01/05/2016 - 10:59 | 6999549 FireBrander
FireBrander's picture

I'm nots that smarte, but heres what I sees:

 

$40 oil = $2.25 gas

$35 oil = $2.00 gas a MONTH LATER.

$40 oil = $2.25 gas THE NEXT DAY!

Mees reely feels I's getten fucked theres someways...

Tue, 01/05/2016 - 11:19 | 6999644 TwoHoot
TwoHoot's picture

How much of that is taxes (direct and indirect)? How much does it cost to refine and transport?

The raw material cost (crude oil) can go to zero and gasoline still won't be free.

Tue, 01/05/2016 - 09:33 | 6999180 LawsofPhysics
LawsofPhysics's picture

Despite the "ungrowth", the "glut" of oil, and the "lack of demand" America is still IMPORTING over 7 million barrels of oil per day...

I really don't think people understand the consequences of central banks that have been GLOBALLY destroying price discovery and using "mark to FANTASY" accounting for 40+ years.

Going to be like nothing humanity has ever seen before.

Tue, 01/05/2016 - 10:32 | 6999445 Redneck Hippy
Redneck Hippy's picture

The US also EXPORTS gas, diesel, jet fuel and other refined products. We import oil to keep our refineries working, not because we actually need the oil here.

Also, we just starting EXPORTING crude directly, and the first liquified natural gas load for export is loading as we type.

Tue, 01/05/2016 - 09:32 | 6999184 JRobby
JRobby's picture

Saudis can see the end of empire now.

Tue, 01/05/2016 - 09:47 | 6999230 I AM SULLY
I AM SULLY's picture

A Saudi implosion seems inevitable - and that means "somebody" is getting ready to occupy the gulf (formally).

This whole situation could get out of control really fast - and war between Iran/KSA? - that's pretty much WW3.

Tue, 01/05/2016 - 09:39 | 6999208 Herdee
Herdee's picture

Iran is coming onstream.The Head-Choppers can't stop it.The U.S. will cough up billions to pay back Iran and it's not going back into the Dollar system.You can bet they'll be trading in Ruble and Yuan.

Tue, 01/05/2016 - 09:44 | 6999221 LawsofPhysics
LawsofPhysics's picture

^^^this. Yes, interesting times. Precisely why a global producer (the U.S.A. once) should not be pissing down the backs of their customers and telling them it's raining. Eventually they figure it out. very bad for business and CONfidence.

Remember folks, the velocity of a dead currency is in fact ZERO.

Tue, 01/05/2016 - 10:19 | 6999372 RhoneGSM
RhoneGSM's picture

I like Head-Choppers.  Great name.  A new Wheel of Fortune before and after puzzle:

 

Towel Head Choppers. Prize is a week in Riyadh!

Tue, 01/05/2016 - 11:30 | 6999711 Nobody For President
Nobody For President's picture

Second prize is two weeks in Riyadh.

Tue, 01/05/2016 - 11:31 | 6999719 Montani Semper ...
Montani Semper Liberi's picture

Head Choppers versus the Hand Choppers.

Tue, 01/05/2016 - 09:45 | 6999225 I AM SULLY
I AM SULLY's picture

I think the world, including its leaders, has gone mad. Trying to ascribe rational motivations to any actions at this point is a real challenge.

Tue, 01/05/2016 - 09:47 | 6999233 big rock
big rock's picture

Just a note on how/why so many oil companies are showing increases in "reserves". Under current accounting rules they only have to bore (and not complete/frack) a hole, in other words they just have to "spud" the hole, in order to claim the potential oil under ground as a new "reserve". They could be months and probably years away from actual completion and production of the well yet just because they bored the hole they can count that well as new reserves. That's the reason so many companies, especially in the Bakken, are drilling and not completing their acreage. They go to their lenders and say look at us, we just upped our reserves by xxx% when in fact they did no such thing.

Tue, 01/05/2016 - 09:51 | 6999249 gswifty
gswifty's picture

I'm thinking this is the mother of all head-fakes. 

Tue, 01/05/2016 - 09:59 | 6999280 mtl4
mtl4's picture

No, the mother of all head fakes would be a US stock market rocketing upward while the fed continues to raise interest rates.........until you finally reach the tipping point.

Tue, 01/05/2016 - 10:01 | 6999291 eaglerock
eaglerock's picture

Long Scimitars!

Tue, 01/05/2016 - 10:06 | 6999313 RadioFlyer
RadioFlyer's picture

Long goat ropes!

Tue, 01/05/2016 - 11:32 | 6999728 Nobody For President
Nobody For President's picture

Long solar power!

Tue, 01/05/2016 - 10:11 | 6999329 pakled
pakled's picture

"as investors focused instead on record stockpiles and rising supply."

 

There is possibly a bigger picture here though. Cycles. When the cycle, such as the commodities cycle, is down, prices don't react upward to scary stories, or even scary fundamentals if/when they occur. When the cycles are up, the least little bad news story will trigger a spike.

Investors are focused on supply and stockpiles, sure. When the cycles shift up, behavior patterns will shift, and this example, rising supply and stockpiles won't keep investors from shitting their pants and panic buying when the sabers are rattled.

Tue, 01/05/2016 - 10:13 | 6999342 PrimalScream
PrimalScream's picture

Unfortunately, this big increase in tension between Saudi Arabia and Iran will probably be a big boost for ISIS. It probably means that the Sunni's in the Gulf will step up their funding for all jihadists who are willing to fight against the Iranians. It's bad news - for anyone who wants to see ISIS contained.

Likewise, my guess is that the Saudi's will probably go to the open market to hire soldiers and airmen. They will pay mercenaries to do a lot of their fighting. Just one more reason why they are flooding the world with oil.

Tue, 01/05/2016 - 10:22 | 6999396 silverer
silverer's picture

Two sizeable issues with assuming the price of oil might go up the other day:

1) History.  There's been conflict in the middle east for years.  The world has learned to live with it.  It would take something pretty drastic for the panic button to get hit, like multiple directed attacks on oil infrastructure that actually took the production off-line.

2) Present demand and supply.  Even if a few areas were put out of service due to "disenfranchised unauthorized individuals",  other suppliers of oil scattered throughout the world would be happy to fire up shut down wells and take up the slack.

Tue, 01/05/2016 - 10:26 | 6999411 shovelhead
shovelhead's picture

Anyone going to drive an extra 150 miles a week if the Sauds and Iranians start lobbing Akbars at each other?

Well then, there you go.

 

Tue, 01/05/2016 - 10:31 | 6999433 Youri Carma
Youri Carma's picture

Frankly I am still skeptical about oil bottoming even with the dollar going down. Oil could go down faster than the dollar. The reason is that OPEC output is the highest since 2012 as Saudi crude exports rose, Iraq’s oil and Iran’s oil comes online, Libya signals more crude, Russian oil patch just keeps pumping, U.S. shale drillers are now free to export U.S. oil into global glut and China/World demand slows.

IEA saying oil prices may fall more as demand slows and the world’s top oil traders don’t expect a recovery any time soon. Russia sees no oil price recovery in the coming 7 years. Algeria to boost 2016 oil output and a study suggest a possible bottom for crude at around $21.5 on July 2016. Goldman Sachs reiterates warning that crude could drop to $20 a barrel.

And a big question mark still remains the schedule of expiring hedges? I think that all oil producing countries want to produce into these gaps of oil expiring hedges which for now keeps down warded pressure on oil until they really blow up.

Also See These Links: http://forum.prisonplanet.com/index.php?topic=313001.msg1583102#msg1583102

Tue, 01/05/2016 - 11:39 | 6999481 Pasadena Phil
Pasadena Phil's picture

.

Tue, 01/05/2016 - 11:49 | 6999877 gswifty
gswifty's picture

Yup. This glut will be gone like morning mist.

Tue, 01/05/2016 - 10:55 | 6999536 Peter Pan
Peter Pan's picture

"There are too many Saudi royals and too few goats"

Fuck me dead, I just realised where a lot of those Saudi's got their goatees from.

Tue, 01/05/2016 - 11:41 | 6999803 F0ster
F0ster's picture

Match.com

Tue, 01/05/2016 - 12:08 | 7000004 boeing747
boeing747's picture

There are plenty of goats on Turkey mountains.

Do NOT follow this link or you will be banned from the site!