With hard-line politicians in the US and Iran dismissing any possibility of a meaningful nuclear agreement between Iran and the West, the negotiators press on in the hope of saving face for the Obama and Rouhani detente.
The reality is that whatever solution they come up with is already history. Until recently Iran's only deterrent against a US attack was its semblance of control of the straits of Hormuz, export route for much of the oil from the Middle East. This particular deterrent has been nullified by the copious amounts of oil in the global market and futility of closing its main trade route.
The second major deterrent is, of course its potential nuclear arsenal. No one really knows how advanced Iran's nuclear weapons programme really is. The layer upon layer of deceit and misinformation has surely ensured that only a small fraction of the immense nuclear and weapons programme will ever come to light.
So despite the waving of agreements the managers of Iran's security know the only thing that separates them from events in Syria or Iraq is a nuclear arsenal. Historically, the dilapidated nuclear power of North Korea can still threaten the US and its allies and remain unscathed yet 2 of the largest armies in the Middle East, Syria and Iraq imploded leading to the disintegrated of those countries. Ironically, Syria was regarded as a safe haven for many Iranian leaders, who kept residences and safe houses there.
Building an advanced nuclear programme with intense sanctions is costly and dangerous. However, the loosening of sanctions and the possibility of a closer relationship with European and US companies can facilitate the import of just the right components to add on to the substandard ones provided by Russia, and North Korea. Iran may curtail its legitimate nuclear programme but it needs advanced rocket capabilities and nuclear warheads for its survival. No Iranian regime would disassemble a programme that it claims, does not exist
Showing posts with label oil. Show all posts
Showing posts with label oil. Show all posts
Monday, 17 November 2014
Friday, 14 November 2014
Saudi Arabia: the new OPEC
OPEC's rearguard seems to have momentarily stopped the exponential slide in oil prices. It seems there is a level where all interests converge to stabilizing the price.
The unilateral actions by Saudi Arabia has damaged the relationships within OPEC beyond repair. It is virtually impossible to differentiate between the sectarian battles on the ground and the groupings within OPEC.
The growing mistrust between Iran and Saudi Arabia and the collection of failed states and minnows that make up the rest of OPEC have only self interest as their priority and currently Saudi Arabia either funds or subsidies many of the regimes.
The United States and Saudi Arabia will now want to see a period of stability for oil prices. It seems the ever chaotic region can now tolerate continued sectarian violence, as long as the Saudi oil fields are out of bounds.
- Saudi Arabia has clearly warned of the negative implication of continued US production.
- Iran and Russia have been painfully reminded not to meddle too much in their neighbors affairs, or suffer the consequences.
- OPEC has been thoroughly tamed.
- The US consumers can happily drive to their Thanksgiving dinner without being bankrupted.
The unilateral actions by Saudi Arabia has damaged the relationships within OPEC beyond repair. It is virtually impossible to differentiate between the sectarian battles on the ground and the groupings within OPEC.
The growing mistrust between Iran and Saudi Arabia and the collection of failed states and minnows that make up the rest of OPEC have only self interest as their priority and currently Saudi Arabia either funds or subsidies many of the regimes.
The United States and Saudi Arabia will now want to see a period of stability for oil prices. It seems the ever chaotic region can now tolerate continued sectarian violence, as long as the Saudi oil fields are out of bounds.
Thursday, 19 June 2014
Profiting from the fog of war
By now the whole world knows about ISIS. This seemingly invincible army of several 1000 marauding across Iraq tweeting and preparing glossy annual reports. They have been linked to every world power and have now replaced their brand new Toyotas with even newer Humvees. My first impression would be if they are tweeting and communicating and using brand new Toyotas, then surely we should know a lot more about them, then we let on.
The Middle East has always been the toughest region for analysts and journalists. Middle Easterners love drama and exaggeration. They will blame everything on some power or another and conspiracy theories are part of regular day to day reporting. Furthermore, to a Middle Easterner everything happens for a reason. The great powers have meddled in the region for so long most people see some grand imperialist plan behind every event.
I don't find it surprising that even the seasoned journalists are buying into these wild conspiracy theories. They sound good, sell papers and are great copy and paste material from regional websites. As a trader you can't trade on irrationality but you can profit from it, if you look through the fog of war you will see trading opportunities in every market.
The oil companies, aid agencies, and anyone that has to take rational decisions seem to be playing things down a bit. I am glad that the markets did not go into full panic mode. Ironically it is in times of crisis that the markets revert to looking at true fundamentals of the economy.
Iraq is clearly a failed state. It has been for decades. Iraq is currently Baghdad and the few well guarded oil facilities in the South. The much talked about refinery in Baghdad was predominantly for domestic use and a pretty inefficient plant, at that. Iraqi oil has been plagued by so many mishaps and has been on and off the market for so long that the Kurds seem to think they own most of it anyway.
The predominantly Shia Iraqi government and army pretty much allowed the Sunnis and Kurds to manage their own domains. They did not fight ISIS, because there was nothing to fight for. This a feudal, tribal failed state. As far as the Shia are concerned that is Sunni land anyway. If the Sunnis attack Najaf or Kerbala, things will change.
The questions that should be asked are, not so much who is behind ISIS but who will attempt to gain from this bizarre phenomenon and the latest twist in another failed Middle Eastern project. For the list is long and getting longer by the day, but I am sure the journos are already copy and pasting the latest conspiracy theory.
From a trading perspective the noise and trading opportunities are widely amplified by geopolitical activity like this. We saw that in Ukraine, as well. The initial movement tends to be quite rapid, particularly with the algos going bananas looking at ISIS Twitter feeds about world domination.
However hedge funds and regulators are far smarter then they used to be and a nod here and a few encouraging words normally sends the market in the direction it was going anyway or stabilises it.
It is hard to believe, just last week everyone was complaining about a lack of volatility.
Tuesday, 17 June 2014
The new paradigm of trading and politics: Follow the noise
There was a time when to succeed in the developing world you needed a flag, a carefully marked out border, an airline, and a despotic leader with lots of foreign bank accounts. Before that time the world was pretty much a feudal realm with lots of self appointed leaders.
The recent events in the Middle East show us a new acceptable form of global politics. Random territories, controlled by different groups with conflicting sectarian and tribal links. Borders that are nonexistent or highly porous. Armies often number in the hundreds and drive around in Toyotas, pillaging, and massacring. The so called authorities hide in massive fortified citadels protecting their oil. Has anyone ever seen Mad Max, or Game of Thrones. This is a mix of the two. Ironically, Iran is now seen as saviors in this mess. The pariah state condemned by most of the world has gone full circle. How bad are the baddies, when Iran is a goodie ?
In a world of high tech gadgetry, can a couple of 1000 lightly armed men with no air-support really take the world hostage and cause a panic in the oil complex. Then there are the Kurds. A nation that spans four geographic countries, that has no real state but now has the capacity to negotiate and sell its oil in the open market and pretty much do anything it wants. In the middle of this, real nation states like Iran and Turkey struggle to cope with the enfolding crises and somehow get condemned for not following global political and human rights norms. The ultimate questions are being asked and not answered. Were we safer in a world with the likes of Saddam Hossein ??? Who knows.
This is the brave new world of the high frequency traders, super speed news. A world where we can lose an airplane but can locate our Ipad at the touch of a mouse. Its a new world for politics, but also for trading. Most independent traders still look at systems and use indicators. 90 % fail. At any particular moment 10% are succeeding and a few percent are doing rather well. What do the 10% do that is so successful. They wait, they don't trade. Not trading is your best trade. They play Poker. Hang out with the kids and keep a very close eye on things.
They know what moves the market. A market is never over bought or over sold. It is at exactly the right price in that moment. Indicators on most instruments have been over-something for days or months with no reversal.
They just wait. The most difficult thing for a human being in the age of action. Waiting And when the small band of pirates run towards the oil, or when the Bank of England dude talks up the pound or when some random correlation signals a black Swan in a market. they move. With all their available resources. Intensity that you can not believe and an unsurpassed conviction in the trade. You cant really get that conviction with a lagging moving average. The 90% lag and fail, like their indicators. Like the hooded guy on the Iraqi border. They go as fast as they can wiping out all the stops along the way and clearing the table. Then its back to the drawing board.
Now, don't get me wrong, all this requires a ton of preparation. Sure you look at the charts checking out Fibonacci, Ichimoku and other exciting, colorful names from the last millenia , but do they actually trade on it, unlikely. Its funny how oil really did not go up that much after the ISIS business, but it went up quite a lot in the weeks before. There were no secrets, all the info about the impending madness was a Google search away. The eagle eyed algo or the able trader pieced it all together. Everyone else was saying oil was overbought 2 weeks ago. The 90%. That is the new paradigm of politics and of trading. By all means, follow the noise, it is louder than ever, but enjoy the quiet, while you wait.
For more on poker and patience check out the aptly named Mercenary Trader link
The recent events in the Middle East show us a new acceptable form of global politics. Random territories, controlled by different groups with conflicting sectarian and tribal links. Borders that are nonexistent or highly porous. Armies often number in the hundreds and drive around in Toyotas, pillaging, and massacring. The so called authorities hide in massive fortified citadels protecting their oil. Has anyone ever seen Mad Max, or Game of Thrones. This is a mix of the two. Ironically, Iran is now seen as saviors in this mess. The pariah state condemned by most of the world has gone full circle. How bad are the baddies, when Iran is a goodie ?
In a world of high tech gadgetry, can a couple of 1000 lightly armed men with no air-support really take the world hostage and cause a panic in the oil complex. Then there are the Kurds. A nation that spans four geographic countries, that has no real state but now has the capacity to negotiate and sell its oil in the open market and pretty much do anything it wants. In the middle of this, real nation states like Iran and Turkey struggle to cope with the enfolding crises and somehow get condemned for not following global political and human rights norms. The ultimate questions are being asked and not answered. Were we safer in a world with the likes of Saddam Hossein ??? Who knows.
This is the brave new world of the high frequency traders, super speed news. A world where we can lose an airplane but can locate our Ipad at the touch of a mouse. Its a new world for politics, but also for trading. Most independent traders still look at systems and use indicators. 90 % fail. At any particular moment 10% are succeeding and a few percent are doing rather well. What do the 10% do that is so successful. They wait, they don't trade. Not trading is your best trade. They play Poker. Hang out with the kids and keep a very close eye on things.
They know what moves the market. A market is never over bought or over sold. It is at exactly the right price in that moment. Indicators on most instruments have been over-something for days or months with no reversal.
They just wait. The most difficult thing for a human being in the age of action. Waiting And when the small band of pirates run towards the oil, or when the Bank of England dude talks up the pound or when some random correlation signals a black Swan in a market. they move. With all their available resources. Intensity that you can not believe and an unsurpassed conviction in the trade. You cant really get that conviction with a lagging moving average. The 90% lag and fail, like their indicators. Like the hooded guy on the Iraqi border. They go as fast as they can wiping out all the stops along the way and clearing the table. Then its back to the drawing board.
Now, don't get me wrong, all this requires a ton of preparation. Sure you look at the charts checking out Fibonacci, Ichimoku and other exciting, colorful names from the last millenia , but do they actually trade on it, unlikely. Its funny how oil really did not go up that much after the ISIS business, but it went up quite a lot in the weeks before. There were no secrets, all the info about the impending madness was a Google search away. The eagle eyed algo or the able trader pieced it all together. Everyone else was saying oil was overbought 2 weeks ago. The 90%. That is the new paradigm of politics and of trading. By all means, follow the noise, it is louder than ever, but enjoy the quiet, while you wait.
For more on poker and patience check out the aptly named Mercenary Trader link
Thursday, 12 June 2014
The ISIS axis. Middle East's new power brokers
With the militant war raging in Northern Iraq it seems like the crazy plan of containing the Syrian civil war has finally failed. The total inaction in Syria for the past 2 years has led to the training and arming of a large army of battle hardened over zealous militants that now threaten to spillover into the rest of the region.
With Syria largely forgotten and with no great prize apart from a desolate wasteland the militants are moving to plan B. Even the name ISIS could have been apt for any James Bond nemesis. Like any great movie the sequel has to have far more action, bigger explosions and involve the whole world.
ISIS is heading directly for the Iraqi capital and the oil fields of Southern Iraq. ISIS's timing is bizarrely perfect. With an America that doesn't seem to have an appetite for war and an Iran that is bending over backwards to seem nice, the vacuum in the region leads nicely to the doorstep of Saudi Arabia. Of course, you do not bite the hand that feeds you, so Saudi is clearly the final frontier for ISIS.
The only questions that remain is will Iran still pretend to be nice or will ISIS wind them up enough for them to unleash their full insurgency in Iraq. You can just imagine the fuming IRGC generals sitting on their hands and gritting their teeth. It wasn't a long time ago that Hezbollah and the IRGC were the most feared insurgency in the Middle East. Those days have long gone.
Oh yes, there is one more question. The Kurds are remarkably quiet in this little war. Could there be a tacit agreement between the Kurds and ISIS to carve up the area. That would be a formidable force. The Kurds are historically some of the most accomplished and battle hardened fighters in the region. They also sit on a nice patch of oil rich land. This is one hell of a sequel waiting to happen. And by the way , if you were thinking of shorting oil and a nice quiet summer forget it.
With Syria largely forgotten and with no great prize apart from a desolate wasteland the militants are moving to plan B. Even the name ISIS could have been apt for any James Bond nemesis. Like any great movie the sequel has to have far more action, bigger explosions and involve the whole world.
ISIS is heading directly for the Iraqi capital and the oil fields of Southern Iraq. ISIS's timing is bizarrely perfect. With an America that doesn't seem to have an appetite for war and an Iran that is bending over backwards to seem nice, the vacuum in the region leads nicely to the doorstep of Saudi Arabia. Of course, you do not bite the hand that feeds you, so Saudi is clearly the final frontier for ISIS.
The only questions that remain is will Iran still pretend to be nice or will ISIS wind them up enough for them to unleash their full insurgency in Iraq. You can just imagine the fuming IRGC generals sitting on their hands and gritting their teeth. It wasn't a long time ago that Hezbollah and the IRGC were the most feared insurgency in the Middle East. Those days have long gone.
Oh yes, there is one more question. The Kurds are remarkably quiet in this little war. Could there be a tacit agreement between the Kurds and ISIS to carve up the area. That would be a formidable force. The Kurds are historically some of the most accomplished and battle hardened fighters in the region. They also sit on a nice patch of oil rich land. This is one hell of a sequel waiting to happen. And by the way , if you were thinking of shorting oil and a nice quiet summer forget it.
Monday, 9 June 2014
OPEC: Counter hegemon or lame duck
How many of you remember the imperious personality of Sheikh Yamani ? The suave Saudi Minister of Oil and powerful OPEC delegate for 25 years. There was a time when the whole world held their breath every time OPEC met. The meetings in Vienna became such a global media spectacle that the infamous Carlos the Jackal took the OPEC ministers hostage in 1975 to further his dubious cause.
The world has indeed changed. Even though Saudi Arabia is still an oil powerhouse and the Straits of Hormuz still have strategic value, the emergence of powerful non-OPEC oil producers and the collapse of the OPEC administered pricing system in 1986 ushered in a new era in oil pricing. The nail in the coffin for OPEC was the United States's Strategic Petroleum Reserve and the US energy self sufficiency doctrine that has emerged. This led the US to invest heavily in the technology to produce shale oil and alternative energy sources. The notion of Peak Oil, so popular just a few years ago has been banished to the scrap heap.
The real challenge for OPEC is not setting oil ceilings and controlling prices. That power shifted from multinational oil companies in 1950s and 1960s and OPEC from 1973 to 1986 to the so called market. However, the international market for trading oil is a fragmented beast that involves many diverse private and public entities. This includes investment banks, hedge funds and retail investors, including private investors and high net worth individuals.
The futures markets attracts a wide range of financial players (pension funds, hedge funds, index investors, technical traders, & retail investors). Concerns that these financial players & their trading strategies could move the oil price away from the true underlying fundamentals has alarmed many governments and regulatory authorities.
With large private oil companies and national oil companies virtually powerless to control oil prices and a world that can function with relatively high prices the OPEC countries have been happy to sit on the massive windfall and the enormous budget surpluses that have resulted in Middle Eastern sovereign funds buying whole neighborhoods in London and Paris.
In short OPEC fell from its lofty position, as the only developing world entity that could stand up to the hegemonic power of globalization, to an embarrassing quango with very little teeth and firmly in the pocket of what we loosely term the market.
Even within the elite club the grand vision of the Shah of Iran in the 70s and the war mongering Saddam in the 80s have been replaced with dithering leaders and a dilapidated and fragmented oil complex that is in need of new technology and fully dependent on Western companies to function. Iran is the only country that has tried to run its oil industry without too much outside influence. But this has led it to halve its export capacity and practically eliminate any influence it had in OPEC.
Will this scenario change ? The simple answer is no. Running a Middle Eastern country is a difficult job, with very little job security. Qadaffi, Assad, the Shah of Iran, and Saddam Hussein can vouch for this. Middle Eastern leaders know the oil price will not stay this high forever. One day there will be too many Teslas to warrant a 110 dollar oil price. At that stage the status quo will remain in perpetuity and the Middle East will again become the forgotten route between East and West, the Silk Road.
The world has indeed changed. Even though Saudi Arabia is still an oil powerhouse and the Straits of Hormuz still have strategic value, the emergence of powerful non-OPEC oil producers and the collapse of the OPEC administered pricing system in 1986 ushered in a new era in oil pricing. The nail in the coffin for OPEC was the United States's Strategic Petroleum Reserve and the US energy self sufficiency doctrine that has emerged. This led the US to invest heavily in the technology to produce shale oil and alternative energy sources. The notion of Peak Oil, so popular just a few years ago has been banished to the scrap heap.
The real challenge for OPEC is not setting oil ceilings and controlling prices. That power shifted from multinational oil companies in 1950s and 1960s and OPEC from 1973 to 1986 to the so called market. However, the international market for trading oil is a fragmented beast that involves many diverse private and public entities. This includes investment banks, hedge funds and retail investors, including private investors and high net worth individuals.
The futures markets attracts a wide range of financial players (pension funds, hedge funds, index investors, technical traders, & retail investors). Concerns that these financial players & their trading strategies could move the oil price away from the true underlying fundamentals has alarmed many governments and regulatory authorities.
With large private oil companies and national oil companies virtually powerless to control oil prices and a world that can function with relatively high prices the OPEC countries have been happy to sit on the massive windfall and the enormous budget surpluses that have resulted in Middle Eastern sovereign funds buying whole neighborhoods in London and Paris.
In short OPEC fell from its lofty position, as the only developing world entity that could stand up to the hegemonic power of globalization, to an embarrassing quango with very little teeth and firmly in the pocket of what we loosely term the market.
Even within the elite club the grand vision of the Shah of Iran in the 70s and the war mongering Saddam in the 80s have been replaced with dithering leaders and a dilapidated and fragmented oil complex that is in need of new technology and fully dependent on Western companies to function. Iran is the only country that has tried to run its oil industry without too much outside influence. But this has led it to halve its export capacity and practically eliminate any influence it had in OPEC.
Will this scenario change ? The simple answer is no. Running a Middle Eastern country is a difficult job, with very little job security. Qadaffi, Assad, the Shah of Iran, and Saddam Hussein can vouch for this. Middle Eastern leaders know the oil price will not stay this high forever. One day there will be too many Teslas to warrant a 110 dollar oil price. At that stage the status quo will remain in perpetuity and the Middle East will again become the forgotten route between East and West, the Silk Road.
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