There is an interesting risk/reward setup in oil at the moment as it looks like Israel will hit back against Iran.
Axios reports:
“Israeli officials tell Axios it will launch a “significant retaliation” within days that could target oil production facilities inside Iran and other strategic site”
The Islamic Revolutionary Guard Corps has been spreading threats today across several of their channels, claiming that if Israel decides to launch an attack on the Iranian oil industry, then they will retaliate with strikes against Azerbaijan, Oman, Saudi Arabia, and the United Arab Emirates.
Former Israeli Prime Minister Naftali Bennett also tweeted this yesterday:
Israel has now its greatest opportunity in 50 years, to change the face of the Middle East.
The leadership of Iran, which used to be good at chess, made a terrible mistake this evening.
We must act *now* to destroy Iran’s nuclear program, its central energy facilities, and to fatally cripple this terrorist regime.
To strike the head of the octopus of terror, that, in its cowardice, sent its tentacles (Hamas, Hezbollah, the Houthis, etc.) to murder us, while the Ayatollahs sat safely in their palaces in Tehran.
The octopus’s tentacles are temporarily paralysed – now comes the head.
Now, the thing is: The US does not want a spike in oil prices a month before the election, so that’s a critical part of the puzzle. Americans hate higher gasoline prices and the election is close. The US certainly has some sway in Israel, though Netanyahu doesn’t seem to care that much.
In any case, oil is still pretty cheap at $72, particularly with the US and China cutting rates. If this war were to spiral, I also don’t think OPEC would be in any rush to be pushing out extra oil, particularly Russia. At least not until crude prices were in the $90s.
On top of that, crude positioning data still shows a crowded short trade.
Chances are, Israel doesn’t attack Iran’s oil and crude falls back to $68 but if they do, there could be a powerful squeeze and that makes for a risk/reward trade that’s worth pondering.
This article was written by Adam Button at www.forexlive.com.
