Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
It's getting to be crunch time in the negotiations between the West and Iran over Tehran's nuclear program.
Despite an ill-advised attempt by U.S. senators to scuttle the talks, it's clear the negotiations in Geneva will continue.
Now, TV pundits have taken to the airwaves suggesting that an agreement would flood the market with Iranian oil.
Combined with production surpluses in the United States and elsewhere, the "instant" prognosticators are pushing their Armageddon pricing scenario again, putting additional pressure on oil prices.
Meanwhile, those playing the new "Iranian card" are shorting oil even further.
It's just the latest example of a self-fulfilling prophecy.
It works like this...
Chicken Little of "The Sky Is Falling Brokerage" hits the airwaves warning of a collapse in prices, only to earn huge off-camera profits based on what he just said.
Meanwhile, average investors are left holding the bag as share prices fall.
There's a big problem with all of this "instant analysis," and I'm going to show you what it is - and how you can resist the temptation to try to catch this "falling knife" altogether...
Overcoming More than 60 Years of Bad Blood
There is no question that the sanctions designed to limit Iran's access to global oil sales and finance have had a sobering impact in Tehran.
While oil exports have continued to countries like China and India, the overall effect of the drastic cut in Iranian oil exports has been nothing short of a disaster for the domestic economy.
In addition, given the indirect way in which these exports must be financed - since Iranian access to Western sources of hard currency has been cut - even those consignments that can be sold cost more on both ends, further reducing the effective revenues to Iran and exacerbating the price tag.
For Tehran, therefore, an accord would allow more oil exports to be phased in, offering the chance of securing badly needed revenues. On the other side of the table, a verifiable move to end its suspected nuclear weapons program (which Iran has always denied) would yield additional regional security, welcomed by the West.
But the truth is that any accord reached in Geneva must overcome a profound amount of mistrust and animosity against the West in general - and the U.S. in particular.
That hostility has been all too clear since the 1979 Islamic Revolution that overthrew the Shah and brought in the ayatollahs as political leaders.
For many Iranians, the hatred of the U.S. goes all the way back to 1953, and a CIA-led MI-6-inspired coup against one of the most beloved populist leaders of the twentieth century - Mohammad Mossadeq.
But that's not the biggest piece being missed by the talking heads on TV...
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.
Dr. Moors,
I find your updates very helpful in cutting through the chatter. After spending an large amount of time and resources to understanding or trying to understand petroleum related energy, I developed this question.
If the budgets of OPEC and Non-OPEC oil dependent governments need in excess of 100bbl pricing to sustain, then doesn't this also signal that increases in the longer term will exceed that pricing?
I understand capital resets, restructures and bad bond debts will be had. However, since gold is "off the balance" sheets for fiscal responsibility, I surmise that black gold is not and therefore due to its world wide availability, this consumable will act as an asset class to sustain dependent governments in the long run.
While 2015 and 2016 will likely see prices WTI prices range 55-75. I am developing a idea that 2017 and beyond will be significant or at least until other larger sources such as Nat Gas or Nuclear energy can ramp up.
Sorry for the long comment but did I misunderstand the longer play here? Oil, Nat Gas, Nuclear?