Obama Bows, Iran Taunts, and
Supply Peaks Making it Time to Buy USO, OIL and USL
A series of events are making it highly probably that we are
quickly approaching the day when the United States will suddenly
attack Iran and oil prices will rise dramatically. This type
of scenario makes it the right time to invest in oil exchange
traded funds: United States Oil Fund LP [NYSE:USO], United States
12 Month Oil Fund, LP [NYSE:USL], and iPath S&P GSCI Crude Oil
Total Return [NYSE:OIL].
Here are the events of the day:
- Iran has shifted away from the dollar to the euro, and is
now bragging that they have gained 5 billion on that
deal. The last time a nation did this was Iraq, just months
before the United States attacked. Iran’s move may
encourage several other countries to follow in their footsteps, to
the detriment of U.S. interests.
- Iran is conducting
five days of war games warning the United States and Israel
against attacks. Knowing that their government has become
widely unpopular since the violent oppression of political
protestors, Iran’s defiant actions suggest they are becoming
aware the real possibility of attack.
- Despite some concessions, the Iranian government in the
aftermath of its elections is now as untrustworthy to the world
community as it has ever been. Now more than ever, Iran will
not be trusted when it comes to their assurances that their
government is not engaged in the development of nuclear
weapons.
- Conservative critics caught Barack Obama bowing down to world
leaders and monarchs in China, Japan and Saudi Arabia, making him
appear to be weak and drawing comparisons
to one term president Jimmy Carter. His delayed decision
on troop levels in Afghanistan have also weakened his image as
commander in chief.
- United States relations with Israel are at a low point, where
Benjamin Netanyahu has been defiant against Barack Obama’s
calls against Israeli settlements. A U.S. attack on Iran can
be used as a bargaining chip for a U.S. brokered peace agreement in
the Middle East.
In the background of all of this is a falling dollar and
evidence of a peak oil situation, where supply hits a peak
while demand continues to rise. The government has
consistently underrated both problems, setting up for natural
support for oil prices. But more importantly, we should have
respect for the underlying politics. The president of the
United States is starting to look vulnerable and a succesful attack
on an unpopular Iranian regime can help make him look better and
solve several problems.
Oil ETFs have also significantly underperformed the inflation trade
while gold has been rising dramatically, suggesting oil to be
undervalued on its own. Of the three ETFs mentioned above,
USL tends to outperform the three due to
less exposure to contango.
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Trying to draw parallels between Iran/Iraq and Bush/Obama
administrations demonstrates very poor geopolitical awareness.
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Author:
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Sand
Huatmr
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Subject:
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Market Makers
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Sentiment:
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Neutral
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Date:
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11/30/09 at 2:45 PM CST
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