Intraday Market Thoughts

Oil Trading Misconceptions

by Ashraf Laidi
Jan 9, 2020 15:20

“There is a war, let's buy oil” seems to be an oft-repeated phrase these days. Instead of arguing whether war will break out in the Middle East, it's more important to remind that any oil rise from recent MidEast Wars did not last much. A new Premium video below has been issued to our Premium subscribers, further detailing the rationale of last night's trade, which is deepening in the money as we speak.

Starting with Saddam Hussein's invasion of Kuwait in early August 1990, US crude oil doubled from $20 to $40 per barrel after Kuwaiti pipelines were set in flames. Oil peaked 2 months later at $41, before descending on downward spiral ahead (and after) the US-allies' declaration of war over Iraq in January 1991. What about the US invasion of Iraq in March 2003? Oil began rising in the preceding three months as the US fabricated the case for invading Saddam Hussein—from $26.50 in December 2002 to $40 in February of 2003. Oil fell in the subsequent three months back to mid 20s.

Some might say: “But oil rose throughout the rest of 2003 and 2004 !”. Yes, and so did every other commodity and currency against the US dollar, as the US dollar bear market intensified on a combination of escalating twin US deficits and Fed rate cuts. Also, don't forget china headed off an infrasctrure building boom, sending every commodity higher.

What about now? In an age of excess oil supply courtesy of debt-ridden frackers, and dubious oil demand from a mixed global economy, would you buy every oil jump? Or would you wait for US crude to reach $55 and buy there based on your expectations of resurfacing MidEast action? All of this is covered in our Premium video (along with oil dynamics relative to oil and indices) as well as an actionable trade idea.


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