October 2, 2024 | Iran’s Threat To Use It’s Largest And Most Lethal Ballistic Missiles To Attack Israel Lifted The Crude Oil War Premium by US$5/b

The first major issue to be concerned about is the Middle East: 

Israel’s multi-phased removal of the top military and leadership of the terrorist group Hezbollah has moved the northern Israeli war front to a more deadly phase. Starting with the killing of longtime Hezbollah leader, Nassan Nasrallah (believed to be a direct descendant of the prophet Mohammad’s family) has incensed Shia believers across the world. Nasrallah’ death was rejoiced in the US as it has taken 41 years to get revenge against the leader that authorized the attack on the marine base in Beirut that killed 241 marine personnel and 58 French paratroopers. President Biden and many US military leaders applauded Israel’s audacious move against a long standing target of the US.

In addition the decapitation of the military leaders of Hezbollah has thrown the terrorist organization into chaos. Who will lead them now and how quickly can they get rearmed and have new command structures? This can take time. Iran yesterday fired 200 conventional missiles at Israel (reaching Tel Aviv) and most were shot down by Israeli and US forces. Damage occurred at schools and homes for those that landed. There were three Israelis wounded and only one casualty, that of a Palestinian civilian in the West Bank. The US announced that they are sending thousands of extra troops and weaponry to the area to deter Iran. Some of the additional forces will be sent to the Red Sea to stop the Houthis from firing at US Navy warships (three were attacked last week). Also, last week a US Navy refueling ship was disabled near Oman by Houthi missiles. So, the danger is also to US forces in the region, as Iran keeps the US and Israel wondering from where the next attack will come from.

The US continues to see signs that Iran is planning to fire its most accurate Ballistic Missiles against Israel. If they do, the US is concerned that these missiles may not be able to be shot down with current technologies and could cause severe casualties in Israel. Israelis have been warned to stay close to bomb shelters. Countries around the world are ordering their citizens to leave the area of Lebanon and Israel. Israel has ground troops in southern Lebanon to target Hezbollah weapons depots and to test the strength of Hezbollah units in place in the area before a major assault could start. Israel wants to obtain a 10 Km ‘clean zone’ so that its citizens chased out of their northern Israel homes can return home and not be faced with daily short range weapons fired by Hezbollah militants into their communities. One sign that Iran may raise the weapons stakes is that they have moved their Supreme Leader, Ayatollah Ali Kammenei to a secure location so that he would survive any Israeli retaliation from a ballistic attack. If Iran uses their newest Ballistic Missiles it could do significant damage and kill large numbers of Israeli civilians and this is what Israel is now concerned about.

The second major issue to be concerned about is the Dockers Strike:

Yesterday, nearly 50,000 port workers went on strike affecting 36 ports on the east and gulf coasts. Some forecasters see this impacting the US economy by up to US$4B per day. This is the first strike by the International Longshoremen’s Association (ILA) since 1977. Any length of the strike could raise inflation and worsen supply chains just before the Christmas holiday season. Shelves may be bare if the cargos cannot be delivered to their buyers. Companies like Walmart, Home Depot, Ikea and Amazon who import tens of thousands of containers a year could be the worst hit. Items like clothing from Europe, cars and other consumer goods may be disrupted for some time. These ports move half of US trade. So both importers and exporters will be impacted.

With a close election battle in the US, the markets are gyrating due to domestic reasons as well as the international military challenges. Our view remains that the US stock market is overvalued and any significant negative economic, military or political news could drive the Dow Jones Industrial’s Index down quickly to the 36,000 level from 42,145 today.

Regarding energy, our WTI price target of US$66-69/b was reached a few weeks ago. This triggered one of our BUY signals and we sent out on September 10th, an SER Action BUY Alert on five companies from our Coverage List. We also reiterated BUYS on three names already on the Recommended List which had fallen to bargain levels. We expect a period of backing and filling for WTI crude in the coming weeks. A test of the recent lows (US$66-68/b) is expected and if this occurs we should see one of our other two BUY signals triggered. We plan to add additional BUY ideas at that time. Subscribers please watch your emails on weak market days as this is when such an Action Alert would be issued.

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Today WTI is at US$72.22/b as it rose US$5/b over the last few days on the recent Middle East escalating confrontations.

Some of the other global economic points to consider are:

• China lowered interest rates (three times in the past 30 days) and lending constraints to stimulate the economy. The stock market rocketed higher but historically this has been a short term juicing that was not sustainable. China has a real estate sector with assets that need to be written off and not the lowering of lending standards to entice individual investors to load up on more overvalued and excess properties. This appears to be a desperate attempt to get the economy back on track. In reality they need to cleanse the system of the overvalued assets by taking a hit on their valuations to move the product to stronger investor hands and at prices that make sense now.
• China’s Industrial Profits fell 17.8% in August from a year ago. This will dampen companies responding to the government’s stimulus call.
• US government spending continues to outpace revenues by a significant margin. It now looks like the 2024 deficit will exceed US$2.1T. The gap alone in August was US$380B or US$12.3B per day.
• The US economy remains resilient with Durable Goods Orders rising 0.5% in August and GDP quarter over quarter rising 3.0%. The GDP Price Index rose 2.5% in Q2/24. Core PCE rose 2.7% (above the Fed’s target).
• The jobs data out on Friday will be closely watched to see if this shows modest growth or weakness as seen from some of the recent sluggish manufacturing data.
• Insiders in US companies are selling at record rates. Insiders at NVIDIA, DELL, and Carvana have filed or have already sold record amounts of stock. Michael Dell alone sold over US$1B of Dell stock. This is clearly a move to take advantage of parabolic stock moves to record valuations.

Market Update:  We are watching the economic data carefully as it appears that consumers are tapped out and this seems to be dragging some economies around the world into recession. For the US the >US$2T of deficit spending with large war spending, is keeping some areas of the US, with hot economies. The military industrial complex and areas where weaponry are built are strong economic areas of the US these days.

Josef Schachter October 2nd, 2024

Posted In: Schachter's Eye On Energy

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