Global energy market is shivering. I saw this coming since last year and I’ve been sharing about this in my interviews in last few months. Iran and USA escalation would be bad for the global economic outlook. This is a very precarious time for the global markets. The need of the hour is diplomatic brinkmanship which lacks at the moment. Engagement strategy between Iran and USA looks a far fetched dream now.
And if we get oil prices over $100 a barrel, kiss the global economy and equity markets good bye. Global economy will lead into deeper recession Tangible assets like Real estate, gold and silver shine in tempestuous times.
Geopolitical Risk Is Making Impact Across All Asset Classes
1. Geopolitics is always derived from grand strategic objective which is based on the 3/4 variables.
USA Grand Strategic Objectives are
– Containment of China and Russia
– Control fuel based assets
– Control trade and sea routes
 Why
China is going to invest $400 billion in Iran oil and gas sector. If war breaks out, CPEC would suffer and impacts china’s global trade
– Control Indian Ocean and few important straits
Markets Are Nervous
If the markets get jittery, USA is to blame for the whole mess. Oil market is already in the BACKWARDATION PHASE I.e (spot price is higher than future price). This is an ominous signal for the market players. Two geo strategic risk happened in less than 4 months.
1. Sept 14 in Aramco field, price went up 14% in one day 2. Jan 3 in Drone attack, price increased by 5.2% in less than 21 hours
History Of Oil Market: Outlier In Prices Possible
The question everyone is asking: what if war starts between Iran and USA, would we see 2008 levels when oil was trading at $147.17 / barrel on July 11-2008?. Premature to say but tensions are running very high and can turn into major conflict. Oil touching 3 digits cannot be ruled out according to market experts based in the energy market.
Oil Market Outlook -2020: Bedlam Is The Only Word
Oil market will remain precarious and in the mainstream media news reporting due to possible production cuts / geopolitical risk are coming into the energy market. I foresee oil prices to be touching around $62 to $90/barrel in 2020.
Premises are simple
1. Dollar to stay weaker
2. Geo political risk
3. Production cuts tantamount to 1-2 million barrel per day
4. Bankruptcies looming.
Scenarios—-Deep Analysis
I have structured two possible scenarios taking into account few variables:
Modeling approach
Price history,
Geography,
Economics,
Probability of events,
Statistics of energy market
Market intelligence report and
Financial implication
SITUATION 1
3 days war between Iran and USA
Price range: 70 to 95
SITUATION 2
7 days or 1 month conflict between the two countries
Price range: $90 to $150/ barrel
In case of war, oil be trading at a premium ranging from $15 to $50/ barrel. Global macroeconomic stability goes into jeopardy. Tough times ahead of us.
