iWar3 Iraq + Oil Status War Room Slides
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Transcript of iWar3 Iraq + Oil Status War Room Slides
HiddenLevers War Room
Open Q + A
Macro Coaching
Archived webinars
CE Credit
Idea Generation
Presentation deck
Product UpdatesScenario Updates
I. Market Update
II. Middle East TurmOIL Scenarios
III. History of Middle East Oil Shocks
IV. Energy Exposure – Good + Bad
iWar3: Iraq + Oil Status
Market Update
Bill Gross losing it
Rates divergence – EU/UKDubai Market Crash
Winter devoured Q1 GDP
sources: HiddenLevers, Forbes, Bloomberg, WSJ, BBC News, Business Insider
Q1 2015 Rate Hike?
Macro Snapshot
GDP is still positive + home prices rising = bond market signals no fear at all!
-2.9%
iWar3 – Mapping the Players
African Warlords
US Tea Party
Authoritarian
Democratic
Extremist Legit Govt
GOP/Dems
Al Qaeda Taliban
ChinaGovernment
Occupy Wall Street
Latin America Drug Cartels
Iraq Government
source: HiddenLevers, Foreign Policy
ISIS
Conflict Contained
Iran + US + Syria stable Iraq good
for all three
recent uptick in Oil burns off
US involvement only diplomatic
oil fields NOTin hands of
ISIS extremists
Iraq govtmore inclusive
or replaced
sources: HiddenLevers, New Yorker,
$95usd
Oil = 95usd
iWar3Civil war,
not anti-US insurgency
US Strikes Raise Tensions
firepower will not fix Iraq situation
Overt US actions ruin Iran detente
Arab Spring113usd high
Iraq matters more than
Russia Ukrazy
Oil = 115usd
sources: HiddenLevers, New Yorker
$115usd
Israel will not get involved
War Engulfs Gulf
Iraq govt gonefailed state
Oil all-time high$135usd
look for burning oil fields
Easy tellBaghdad
in ISIS control
sources: HiddenLevers, Fox News NY Times
Lebanon civil war 15 years
Oil = 150usd +
distinct from Iran nuclear
threat
$135usd
Scenario: Middle East TurmOIL
Goodconflict
contained
BadUS strikes
raise tensions
Uglywar engulfs
gulf
If the conflict remains in Syria and outside of major Iraqi oil fields, the market eventually forgets.
Absent further risk to oil fields, US strike only raises oil risk premium mildly.
If oil fields in southern Iraq or Kurdish-Iraq are set aflame or taken offline, oil prices will spike substantially.
Middle East Oil Shocks – Never Forget
sources: HiddenLevers
Levers OPEC EmbargoIran
Revolution2011 Arab
SpringiWar1 iWar2
Oct ‘73 - Mar ‘74 Apr ‘79 - July ‘80 Jan ‘11 - Feb ‘12 July ‘90 - Oct ‘90 Mar ‘03 - July ‘08
Oil +135% +166% +30% +95% +335%
S&P -17% +20% +5% -15% 46%
Gold +76% +182% +29% +10% +179%
10 Year Rates +11% +21% -44% -8% 0%
USD Index - - - - -29%
+135% +30%
Middle East Oil Shocks – iWar1 + iWar2
sources: HiddenLevers, CNN
iWar1 1990-91- spike: US invaded Iraq- retreat: Iraq pushed out of Kuwait
iWar2 2003-08- spike: ME tension + rising
speculation + USD down
- retreat: Iraq drilling ban ends + oil bubble pops + financial crisis
+95%
+335%
US Withdrawal from Oil Addiction
sources: US Dept of Energy EIA, USA Today
Shale oil explosion is driving US oil production back toward all time high
Oil imports have fallen below 9M bbl/day from peak of 15M
Production has risen so much that White House is ending ban on US oil exports
US Withdrawal from Oil Addiction
source: Our Finite World , Oil & Gas Journal
Total US miles driven down 3% from 2007 peak while GDP up 7%
Less driving + better mpg oil demand down 15% from peak
US fuel economy rising after being flat for decades
New govt standards require 54 mpg for 2025 model year
Iraq + Oil Status – Recap
US + Iraq both Oil Exporters oil shock history = history
US oil addiction over--> better policy decisions
burning oil fields move the needle
HiddenLevers
ENERGY EXPOSURE – GOOD + BAD
In Azerbaijan, bathing in pure crude is encouraged
Bad Oil Exposure – Don’t trust ETF marketing
source: HiddenLevers
Oil Futures ETFs Don’t Track Oil. Physical Oil Funds Don’t Exist.
Gold ETFs Track Gold Perfectly.
Physical Gold Easy to hold. Physical Oil difficult to hold.
Macro Picture – Global Deflation Risk
sources: HiddenLevers, Economist
technology automation commodities sinking
first world baby bust decreasing birth rate
sluggish GDP growth
So far, deflation trumps geo-political worries
HiddenLevers Use Cases
scenarioOil Prices
scenarioGlobal Deflation
iWar3 – Iraq + Oil Status
macro themeHigh Oil Beta
Funds
data centerCommodities
scenarioMiddle East
TurmOIL