Energy Report: Tanker Attack

Crude oil prices were already creeping higher on a more positive post-vaccine economic outlook but later popped after a report of an attack on a Saudi oil tanker. Fox News reported that an oil tanker off Saudi Arabia's port city of Jiddah suffered an explosion early Monday after being hit by "an external source," a shipping company said, suggesting another vessel has come under attack off the kingdom amid its yearslong war in Yemen. The Singapore-flagged BW Rhine saw all 22 sailors on board escaped without injury, the BW Group said. The company warned some oil might have leaked out from the site of the blast.

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For the oil market, there will be a bit of a risk premium put back on. Whether or not the risk premium stays depends on whether we see more attacks or retaliation in the coming days and weeks. Oil already has been on a tear of 30% since October, and the trend has been substantial. Even hedge funds and bears are starting to look at oil as perhaps one of the most undervalued asset classes. Reuters said that hedge funds and other money managers cut short positions in NYMEX crude by 2 million bbl to 60 million bbl last week. That indicates how many short positions might still be repurchased, putting upward pressure on prices. Short positions were still +27 million bbl above the average low for the last five shorting cycles (starting in August 2018), but just +1 million bbl above the average for the previous 15 cycles beginning in January 2015.

Fox News said, "Saudi Arabia did not immediately acknowledge the blast, which struck off a crucial port and distribution center for its oil trade. However, after a mine attack last month, it damaged a Saudi Arabia tanker that authorities blamed on Yemen's Houthi rebels.” Iran has backed the Houthi rebels, which may complicate any cooling of tensions with the Iranian regime.

Saudi Arabia and other Arab countries and Isreal show concern about a potential Biden Administration, encouraging the Iranians into another era of terror. Iran has been a major disruptive force in the region. There's concern that tensions could undo some of the relationship-building the Trump Administration has done with Isreal and a host of other Arab nations. Iran plans to almost double output in the next year in anticipation of a loosening of sanctions after Joe Biden becomes president, according to Bloomberg. That means more cash to go back to fighting proxy wars in the region and funding their terror campaigns.

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