Oil’s River Card


RESEARCH EDGE POSITION: We are "bullish of" oil and are currently long the XLE, SPDR Energy etf


In our note on crude oil from yesterday we wrote:


"The price of oil appears to be signaling one of two things:  either demand will at some point in the near future accelerate or that there is a geo-political event on the horizon that will reduce supply."


This morning, the river card was revealed in the way of an announcement from the Islamic Republic of Iran.  According to a newswire article:


"The defence minister (Mohammad Mostafa Najjar) told me today that we launched a Sejil-2 missile, which is a two-stage missile and it has reached the intended target," Ahmadinejad said.


The missile was launched from here in Semnan," he added to cheers from the crowd.


I was told that the missile is able to go beyond the atmosphere then come back and hit its target. It works on solid fuel," he added, without specifying the missile's range."


According to other reports, this was Iran's second test of the Sajjil-2 missile, with the first test occurring approximately 8-months ago.  This missile purportedly has the ability to reach targets 2,000 kilometers away with great accuracy.  A quick google map search indicates that the walking distance from Jerusalem to Tehran is 1,559 kilometers and presumably the missile distance is as close.


Now we certainly do not want to be alarmists and this is a test comparable to the one the Iranians performed 8-months, so it's not an example of new technology.  That said, the timing of the test is noteworthy in that it comes only two days after President Obama met with Israeli Prime Minister Netanyahu.  While President Obama was not willing to be nailed down on an artificial deadline, he did note the following  after the meeting:


"Foreclosing a range of steps, including much stronger international sanctions, in assuring that Iran understands that we are serious.""


While Obama does seem to be continuing to pursue a diplomatic approach to Iran, this statement had the appearances of a tougher tone with the Iranians.  Recall that one of President Obama's first major foreign policy moves was an address to the Iranian people on March 20th in which he called for "a new beginning" of engagement with Iran.


As a prospective client emailed us today, the missile test appears to be a "message to Obama", which was a play off the popular Police song, "Message in a Bottle", whose lyrics are as follows:


"I send an SOS to
I send an SOS to
I hope that someone gets my...
I hope that someone gets my...
I hope that someone gets my...
Message in a bottle... Message in a bottle..."


While we don't know for sure if Iranian President Ahmadinejad is a Police fan, he does seem to be sending a message to both Obama and the World.  The immediate reaction to this missile test was that Italian foreign minister Franco Frattini cancelled a planned trip to Iran, primarily because Ahamadinejad wanted to meet in Semnan, instead of Tehran.


From an investment perspective, the idea of geo-political risk was reintroduced full force back into the price of oil today and oil is trading up ~2.5%, which of course is on the back of a ~35%+ move in the year-to-date, despite negative "fundamentals"...


Iran is very relevant in terms of the global oil market.  According to the most recent data, Iran ranks third in the world with ~136 billion barrels of total reserves (second excluding Canada's non-traditional reserves), which is ~10% of the world's reserves.  Iran is the world's fourth largest producer and OPEC's second largest, after Saudia Arabia.  


Increased tensions with Iran rightfully support a bullish case for oil.


Daryl G. Jones
Managing Director

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more