In this update, I will focus only on short-term oil trades. I am not making any portfolio changes to our energy long holdings. We won’t change our oil long ETFs. This article is for those with option exposure over the next 3 weeks.e
In last week’s update, I wrote the following 4 scenarios:
Scenario 1: more of the same.
Scenario 2: Iran escalates to Fujairah.
Scenario 3: Iran attempts to break the Naval blockade.
Scenario 4: The US or Iran capitulates.
Now that the US has kick-started the military back-and-forth again, this article offers my updated thoughts on how I’m thinking about it.
What am I doing?
I’m looking at this from 4 angles:
Geopolitical
Fundamental
Technical
Positioning
Geopolitically, we’re back to tit-for-tat military action like what we saw in July, which ended with Brent surpassing $100/bbl.
The US playbook is to keep doing these limited strikes to temporarily knock out Iranian capabilities to stop the shuttle trade in the Oman lane. The strikes will continue for a while longer, which means no one will step in to short the oil market.
For the Iranians, will they tolerate this playbook? Or will they retaliate more than the July strikes?
I don’t know, but the escalation pattern will determine just how much upside we have in crude. If Iran’s escalation dramatically worsens the Oman flow, then yes, crude could surge much higher than we think.