Exploring Hydrocarbon Depletion
Page added on April 7, 2017
At around 8:40 PM ET, U.S. warships launched 59 Tomahawk cruise missiles at a Shayrat airbase in Syria. This was the first U.S. military action against Bashar al-Assad‘s regime during a six-year civil war. This was in reaction to chemical attack on a rebel-held town in northwestern Syria on Tuesday that killed dozens.
“Geopolitics is once again taking a central role in commodity markets in the wake of surprise U.S. airstrikes in Syria,” writes RBC Capital Markets’ Helima Croft. “While there is no real immediate supply disruption threat given that the majority of local production has long been offline due to the civil war, there remains a number of risks.”
Crude oil prices aren’t showing any signs of weakness so far. West Texas spot futures have gained 0.80% so far on Friday to around $52.12/bbl. The iPath S&P GSCI Crude Oil ETN (OIL) has gained 0.88%. United States Oil (USO) has gained 0.74%. Meanwhile energy stocks are getting dinged. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) — yesterday’s ETF flopper — has fallen 0.32% and the Energy Select Sector SPDR ETF (XLE) has declined 0.14%.
If these U.S. airstrikes are a one-time event, oil implications will be “negligible.” If not, previous oil assumptions “may be upended” says Croft. The two big questions will be whether tensions will emerge between Russia and the Sunni Gulf States and whether U.S. airstrikes will change the dynamics of presidential elections in Iran. She explains:
Certainly, if the fighting were to intensify and spill over the borders into the neighboring producer states, regional supplies would be at risk. This scenario likely remains a low likelihood one for now, in our view. In the immediate aftermath of the strike both oil and gold prices rallied with geopolitical risk premiums returning to the market – at least for a period; in fact, this is a prime example of the “Trumped Up” portion of our gold trading thesis this year.
Second, we believe that the US strikes could upend the dynamics of the May presidential elections in Iran. The conventional wisdom to date was that President Rouhani would be able to secure a second term with the implicit support of the Supreme Leader despite the rising criticism of the nuclear deal from the conservative quarters and growing public disenchantment with the more modest economic dividend from the deal due to residual sanctions.