{"id":83060,"date":"2015-12-29T08:15:08","date_gmt":"2015-12-29T13:15:08","guid":{"rendered":"http:\/\/countingpips.com\/?p=83060"},"modified":"2015-12-29T08:15:08","modified_gmt":"2015-12-29T13:15:08","slug":"russia-turkey-and-oil","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/12\/russia-turkey-and-oil\/","title":{"rendered":"Russia, Turkey, and Oil"},"content":{"rendered":"
December 29, 2015<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Oil<\/p>\n

By Tim Maverick<\/a>, Senior Correspondent<\/em><\/p>\n

The \u201cboyz\u201d are at it again. Trend-following hedge funds are piling into the short oil trade.<\/p>\n

In late November, bets on lower oil prices were at a high for the year, equivalent to 3.5 days of total global demand.<\/p>\n

The short futures and options positions on North Sea Brent oil are at the highest since October 2014 at 141 million barrels.<\/p>\n

Similar shorts on West Texas Intermediate (WTI) crude stood at 172 million barrels on December 1.<\/p>

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That\u2019s doubled over the past seven weeks. WTI shorts are at the third-highest level ever<\/em>, with the two highest levels set earlier this year.<\/p>\n

Such a massive one-way bet \u2013 about 300 million barrels \u2013 sets up the oil market<\/a> for a brutal short-covering rally, and perhaps more\u2026<\/p>\n

Options Volatility<\/h2>\n

The nervousness surrounding the oil market is apparent when you look at the options trading on oil.<\/p>\n

Reuters <\/em>columnist John Kemp pointed this out, saying that implied volatility for at-the-money Brent crude options was in the 86th percentile for all trading days since 2006.<\/p>\n

The implied volatility since 2006 has been just under 31%. In early December, it was at 44%, which puts it at 1.5 times higher than normal.<\/p>\n

Which means something bad \u2013 large spikes upward in price \u2013 could happen.<\/p>\n

Trend-following hedge funds, unlike macro hedge funds, don\u2019t often look at the big picture. To them, geopolitical risk doesn\u2019t exist. Only the charts. So there\u2019s no consideration of possible geopolitical risks baked into their bets on oil prices.<\/p>\n

Geopolitics: Russia\/Turkey Version<\/h2>\n

But there are major geopolitical risks associated with all the players now involved in the Syrian conflict.<\/p>\n

After the downing of a Russian jet by Turkey, Russia pulled no punches in saying that Turkey\u2019s leadership is in bed with ISIS, ISIL, Islamic State, Daesh\u2026 whatever you want to call those barbarians.<\/p>\n

Maybe Putin read the Harvard speech given by Vice President Joe Biden in October 2014. Biden said that the regime of Recep Tayyip Erdo\u011fan was backing ISIS with \u201chundreds of millions of dollars and thousands of tons of weapons.\u201d<\/p>\n

Biden later apologized and the speech was quickly forgotten by the mainstream media.<\/p>\n

But doubts linger about Erdo\u011fan and his family.<\/p>\n

Stories continue to proliferate in media outside the United States that Erdogan\u2019s son and daughter \u2013 Bilal and S\u00fcmeyye \u2013 are involved with ISIS.<\/p>\n

Bilal owns several maritime companies. The companies allegedly carry stolen Iraqi oil on their ships to ports around the globe. (\u201cStolen Iraqi oil\u201d being the polite term for ISIS oil.)<\/p>\n

Meanwhile, S\u00fcmeyye is rumored to be running a secret hospital camp just over the border from Syria in Turkey for wounded ISIS fighters.<\/p>\n

True, or Russian propaganda? Only the Erdo\u011fans and ISIS know, and they\u2019re not talking.<\/p>\n

But there\u2019s certainly no denying that Putin and Erdo\u011fan are cut from the same cloth. Both are highly autocratic rulers that their peoples compare to illustrious predecessors \u2013 czars and sultans with their calls to restore past national glories.<\/p>\n

They also don\u2019t back down from a fight. This may not be Hitler-Stalin, but it still isn\u2019t good for stability in the oil-rich region.<\/p>\n

Oil Investments<\/h2>\n

So how do you play oil for a potential long-term deterioration in the geopolitics of the Middle East?<\/p>\n

My preference would be to own major oil companies with exploration success. To my surprise, the leaders come from Europe.<\/p>\n

Thanks to use of one of the world\u2019s fastest supercomputers, the leader is Italy\u2019s Eni SpA <\/strong>(E<\/a>). The company has spent about $41 billion on exploration since 2005. But it\u2019s been rewarded with finds equivalent to 18 billion barrels of oil. That\u2019s more than double No. 2, Statoil ASA <\/strong>(STO<\/a>).<\/p>\n

Both stocks are, of course, beaten down in price, and may now be worth a look.<\/p>\n

Good investing,<\/p>\n

Tim Maverick<\/p>\n

The post Russia, Turkey, and Oil<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com By Tim Maverick, Senior Correspondent The \u201cboyz\u201d are at it again. Trend-following hedge funds are piling into the short oil trade. In late November, bets on lower oil prices were at a high for the year, equivalent to 3.5 days of total global demand. The short futures and options positions on North Sea […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-83060","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/83060","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=83060"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/83060\/revisions"}],"predecessor-version":[{"id":83084,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/83060\/revisions\/83084"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=83060"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=83060"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=83060"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}