Jun. 20 at 12:43 PM
We are beginning to see how Iran will utilize their newfound power in the region, and I suspect that oil bulls will be quite happy with the results. I’ve talked about the geopolitics quite a bit, but other than referencing a general rise in oil price, I haven’t spoken on the economic power that they will yield.
Previously, OPEC largely controlled the price of oil as it managed the spigot. Sure, there are a multitude of other factors, but they played the largest role in my opinion.
The UAE and Qatar no longer belong to that organization, and it will likely become a shell of its former self. Now that Iran controls the Strait of Hormuz, they will have overall say in the flow of that oil, minimally for the next year or until overland pipelines can be completed.
So, with that in mind, what oil price would Iran like to see? I think this is an exceedingly important question for those of us investing in oil, particularly for the near to long-term.
Iran needs Brent to maintain approximately
$124-
$125 a barrel to balance its budget. This would be the most basic of targets, and I suspect it’s likely their minimum price. Besides budgetary concerns, there is also the obvious interest in placing economic strain on the United States. President Trump, very stupidly imo, announced to the world that the US is at critical levels of oil reserve capacities.
So, if
$124-
$125 per barrel is their base case, at what price could Iran place economic strain on the United States, while also refraining from collapsing the global economy? It should be heavily noted that China will not want to see widespread economic collapse. They will have no problem with financial strain upon the US system, however.
That target, ladies and gentlemen, is likely
$130-
$140 per barrel. A spike to 150 to 160 might teeter the global economy over the edge, and they may spike it for a day or two for demonstration purposes; however sustained levels will likely be at the
$130 to
$140 range.
Without a doubt, they will be capable of influencing prices in the direction of their choosing. Because of our critical SPR levels, they will maintain this ability for the next year. The Permian Basin along with the Alaskan fields will see great expansion over this period. Eventually, their control will wane, but not anytime soon in my opinion. DD and GLTY. NFA as always. There are obviously innumerous factors at play, and things are changing by the minute. I’m making largely predictive statements, and could very well be wrong; however, if things continue in the current fashion, I suspect I will be quite correct.
$ANNA $BATL $HPK $SKYQ $USO