For those of you who think oil prices will continue to steadily rise, you may want to pause and rethink that. The reality is that the price of oil, which in our case means West Texas Intermediate (WTI) crude, recently broke difficult resistance at $110.00 a barrel. I wouldn’t be emptying my son’s piggy bank to buy oil.
Now, if the conflict in Syria worsens and a U.S.-led coalition goes in and bombs the heck out of the Syrian army, then obviously oil prices would drive higher. And to make matters worse, if Syria, which is said to be harnessing the world’s largest chemical weapons arsenal, decides to engage in chemical warfare as its best defense, then we would have a major problem and oil prices would surge.
In the worst case scenario, if U.S. ally Iran and its Supreme Leader Ayatollah Ali Khamenei decide to enter into the fray, then the risk of the war spreading through the tension-filled Middle East would intensify. For example, if Iran decided to join Syria and, in the process, launch an attack against its enemy Israel, then all I can say is hell would break out.
I hope the worst case scenario doesn’t happen, but if it does, look out, as oil prices will surge.
Yet based on oil futures, it seems like the stock market is betting on nothing major materializing in Syria and the Middle East.
The price chain of the WTI crude oil shows futures oil prices declining below $100.00, beginning with the May 2014 contract. Prior to that, the high point is $109.33 for the October contract. In fact, the futures oil prices fall below $90.00, starting with the June 2015 contract, and below $80.00, with the December 2019 contract. The December 2021 contract is priced at $78.00.
Chart courtesy of www.StockCharts.com
Now the prices clearly suggest nothing will happen to wreak havoc with the oil market, specifically with the situation in Syria.
The steady decline in the WTI oil prices also suggests steadily higher production from domestic reserves, including shale oil from North Dakota and Montana and Canadian oil from the tar sands in Alberta. (Read “Why This Cold Prairie State Is an Investment Hotspot.”)
So if you decide to trade oil, keep in mind that it will largely be dependent on the Syria situation at this time—meaning that it becomes more of a betting game, which is only for risk capital.