Iran & the USA - Impact on Oil


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There has long been tension between the United States and Iran. It is important to factor this in, if you are into commodity trading. Oil is the major commodity that is affected in such situations. There have been discussions regarding the lifting of economic sanctions on Iran and which countries were the key swing producers in terms of global oil production.

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Iran & the USA - Impact on Oil

  1. 1. Invast Insights Week Commencing November 25, 2013
  2. 2. | 1800 468 278 This week we look at the following topics: 1.0 Geopolitics and impact on markets 2.0 Indonesia & Australia’s generational struggle 3.0 Iran & the USA – Impact on oil 4.0 Educational videos – stocks and forex 5.0 Weekly economic calendar
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  4. 4. | 1800 468 278 1.0 Geopolitics and impact on markets Over the year we tend to focus on investment strategies, trading ideas and markets in general. We try our best not to indulge in politics or political debates. Basically, these are pointless. We believe the smart money ignores the political noise and focuses on market opportunities. Sometimes the government and politics provide these opportunities, though not often enough to waste time. Occasionally there is room for every trader and investors to sit back and ponder on the geopolitical landscape. We use the word geopolitics intentionally. Geopolitics focuses on larger, strategic efforts by nations to impose their goals and ambitions. It goes beyond the daily political rhetoric that is often read on the nightly news. At Invast, we like to focus on geopolitics to help drive our broader investment themes and thoughts. This week’s issue is written with a geopolitical focus. We apologise if you find these themes boring and unnecessary.
  5. 5. | 1800 468 278 What we have written about this week is always in the back of our minds. The point is to help articulate our way of thinking with you - our clients. At times the market will slow down, news flow will become redundant and we take this opportunity to focus on some big picture themes. There is no point wasting time on news flow that has no immediate impact or benefit. Geopolitics helps explain long term investment decisions. Australia’s huge energy boom is part of an overall shift by nations to diversify their sources of energy. Global multinational businesses arrived in Australia with huge cash reserves because they knew the world is changing. When you focus on the big picture themes, it often provides investment opportunities that others will miss. British Gas, Chevron and a whole list of other multinational groups didn’t just wake up one day and decide to build multibillion dollar projects in eastern Australia around unconventional gas reserves. It was all driven by geopolitics. We hope this gives you some context on what we are about to write below.
  6. 6. | 1800 468 278 2.0 Indonesia & Australia’s generational struggle Recent press headlines are dominated by an ongoing political tussle between Australia and Indonesia’s governments. Suggestions are that Australian intelligence spied on Indonesia’s President and his wife, among other key officials. Normally this wouldn’t have been a major issue if it was not for the personal nature of the surveillance targeting the Indonesian President. We think the matter was complicated by the phone tapping of Susilo Bambang Yudhoyono’s wife, a cultural insult in what is largely an Islamic country. Indonesia as a sovereign, emerging nation must respond, with its President Yudhoyono knowing very well the political and potentially social backlash against his own government if his response was not firm enough. With economic prosperity comes a rising sense of nationalism. As a western ally, Australia has previously been a target of Indonesia radicals – the 2002 Bali Bombings the most deadly killing 88 Australians. Equally interesting, incoming Australian Prime Minister Tony Abbott knows the need to
  7. 7. | 1800 468 278 maintain a firm foreign policy agenda based on an aggressive election campaign run by his party. Both leaders are playing hard ball, as expected, over a trivial issue that has very little geopolitical consequence. Why should you care about this as an investor? The phone tapping issue highlights a more prevailing geopolitical tussle between Australia and Indonesia, an ongoing theme which will likely dominate the relationship over the next decade. Australia has emerged into a resource rich supplier of minerals and energy into Asia. As an island nation, its maritime interests are more commercial than military. Australia cannot ignore the geopolitical importance of Indonesia in maintaining its interest. As huge liquefied natural gas projects commence production from 2015, seaborn trade between Australia and its Asian neighbours will only make its maritime interests more vulnerable and subject to exploitation. This is in addition to the seaborn trade of iron ore and coal into Asia and the flow of imported petroleum from refineries in Singapore and Malaysia.
  8. 8. | 1800 468 278 In turn, Indonesia knows the benefits that Australia can provide – mostly capital and foreign investment as its domestic economy grows. But security is also high on the agenda. Both Indonesia and Australia have a vested interest in maintaining a healthy relationship. The terms of this relationship are now subject to negotiation – both sides want the best return for their investment. While Indonesia is still very much focused on its own domestic issues, Australia is facing a more delicate geopolitical situation. Australia’s economic core and trade flows are becoming more aligned with its Asian neighbours – the time must come for it to decide if it remains aligned with its traditional western allies or starts shifting its foreign political and geopolitical activities towards those more aligned with its neighbours – namely China and its growing sphere of influence. The recent decision to host US Military troops in northern Australia was a direct message that Australia, for the time being, is unlikely to shift away from its traditional core. The consequence of that decision is now potentially playing out.
  9. 9. | 1800 468 278 We think Indonesia is now under pressure to respond. The phone tapping scandal is an opportunity to renegotiate its position. Indonesia’s security and stability has long been at the core of the Australian-Indonesian relationship. Recent activity in the South China Sea has highlighted the growing competition for maritime interests. The fact that Indonesia had previously allowed Australian vessels entry into its territorial waters as a deterrent to asylum seeker movements highlights Indonesia’s willingness to further endorse its Australian security relationship. But Indonesia must tread carefully and ensure its sovereignty is not compromised, at least in the eyes of its Asian neighbours or its population of 235 million people – more than ten times that of Australia. When Indonesia is secured and under the influence of Australia and its allies, it serves as a security perimeter and valuable trading link. Indonesia’s 17,500 islands are either a protective wall for Australia or a beachhead of foreign aggression. Indonesia knows this very well. If Indonesia opts to destabilise its relationship with Australia or fall into an enemy power, as it did to Japan
  10. 10. | 1800 468 278 during World War II, Australia will quickly find itself highly vulnerable at a time when its main energy and minerals exports are starting to rump up via seaborn trade. The situation between Australia and Indonesia is likely to worsen before it improves in 2014. Indonesia needs to reassure China and Japan (to a lesser extent) that it is committed to remaining an independent player. A hard line response to Australia’s intelligence efforts provides this opportunity. Australia will ultimately lure Indonesia back with its competitive advantages and by ensuring the country remains as friendly as possible in order to maintain commercial interests. But like with all things in life, there is the potential for this hypothesis to breakdown. We will be watching developments very carefully in the coming months to see if a more aggressive Indonesia decides the price for collaboration with Australia has now become too high.
  11. 11. | 1800 468 278 The key sectors of the market to watch on any deterioration between Australia and Indonesia are: • Industrial businesses like Coca Cola Amaltil (CCL) who has been investing aggressively over the past few years in order to gain a foothold into the Indonesian beverage market. CCL has recently announced that high levels of inflation are hurting sales volumes in Indonesia but management is committed to ensuring growth continues. CCL is perhaps one of the most aggressive Australian investors into Indonesia and while bottling of beverage products will not necessarily come under political influence, investors will be cautious. • Liquefied natural gas exposures like Woodside Petroleum, Origin and Santos. While seaborn trade is unlikely to be impacted, there is scope for caution and any potential delays to projects of revenue flows from any territorial or maritime disputes. The market will be watching this area closely.
  12. 12. | 1800 468 278 • Agriculture and cattle trading, the most obvious names coming to mind are companies like Australian Agricultural Company (AAC) which is a major exporter of cattle related products. Indonesia has already imposed live cattle import permit numbers and conditions after Australia imposed a temporary ban on live cattle exports. • Ramsay Health Care (RHC) operates some private hospitals in Indonesia although contributions to group profit and operating revenue is very minor at only 2% respectively. • Mining companies who have interests in Indonesia. Robust Resources (ROL) has significant interest in Romang Island – one of the richest and most attractive metal prospects according to recent drill results and exploration feedback. There are plenty of other Australian companies in this space including NCM, RIO and CKA.
  13. 13. | 1800 468 278 3.0 Iran & the USA – Impact on oil While Australia and Indonesia dominate discussion in our own backyard, one of the most important geopolitical developments with respect to the Middle East is currently taking place between the United States and Iran. Discussions are currently taking place over an agreement to allow Iran the limited capacity to develop nuclear power and in return the removal of economic sanctions which have crippled the country’s economy. We have previously written about Iran as an important player in the global supply of oil, not necessarily via its own production assets, but through its influence across the volatile Persian Gulf region. The biggest loser in an improved Iran and United States relationship is Saudi Arabia which co-incidentally is the largest single producer of oil. We discussed this in our previous Invast Insights report along with our analysis on which countries play as key swing producers in terms of global oil production.
  14. 14. | 1800 468 278 It comes as no surprise that Iran’s embassy in Lebanon was attacked last week – perhaps a sign of growing angst among Saudi Arabia and its Gulf allies over the warming of relations between Iran and the United States. The largest single disruption to oil supply would be political turmoil in the very volatile country of Saudi Arabia – a country which the West knows is run by a fragile system of government which is structurally susceptible to internal social issues. The Saudis are so frightened of social disorder that they have announced huge multibillion dollar public spending and welfare programs every time the ruling family’s power has come under threat. Iran, Saudi Arabia, Kuwait and the United Arab Emirates combined produced around 25% of global oil production last year. It is a huge concentration of supply in one single region, a region that has seen an elevation in regional infighting over the past decade and an elevation of competing interests directly involved in a proxy war via Syria. We feel that a fundamental shift in the geopolitics of the region might be under way and oil traders will start to take notice of the vulnerabilities present sometime in early 2014.
  15. 15. | 1800 468 278 We presented our technical analysis on the Brent crude price last week and have been updating our technical views on a daily basis via our YouTube channel and the Invast website. Brent has remained relatively solid despite a rally in the US dollar on the back of tapering expectations. Gold has slipped but the oil price remains firm. We think that the smart money knows very well that Saudi Arabia’s glory run in terms of geopolitical influence might be coming to an end. More attacks on Iranian interest can be expected in the coming weeks – Iran knows that it must prepare to control the backlash in order to pursue its geopolitical and economic gains. Its ability to maintain its sphere of influence in Syria will be a major confidence boost. The foreign biggest loser from Syria’s war if the regime can hold on, will be Saudi Arabia and its Gulf periphery – the United Arab Emirates and Qatar. We will continue to watch for anecdotal signs of evidence in the dynamic geopolitical shift – a theme which has the potential to become significant for energy markets in 2014.
  16. 16. | 1800 468 278 4.0 Educational videos – stocks and forex We recently filmed some educational videos to help traders understand, plan and execute more effectively. The videos touch on both stock investing and forex trading. These videos are a great resource regardless of how experienced you are in trading markets. Sometimes many of the best traders can forget the basics, its worthwhile navigating through this huge archive over the quiet period in markets to ensure best results in 2014.
  17. 17. | 1800 468 278 Chart Pattern Video Tutorials (Click here: chart-patterns.aspx) • Discover Why Chart Pattern Analysis is so Simple, yet Powerful for Traders • The Importance of Ascending and Descending Triangles when Trading • Why Chart Patterns Trading Techniques are Great for New Traders Starting Out • How to Identify Early Reversals Using Chart Patterns & Candlesticks • 7 Continuation Chart Patterns with Real Life Market Examples • 6 Reversal Chart Patterns with Real Life Market Examples • 3 Widely Used Continuation Chart Patterns and When to Use Them
  18. 18. | 1800 468 278 Bullish Candlestick Pattern Video Tutorials (Click here: candlestick-patterns.aspx) • 3 Candlestick Charting Patterns Traders Regularly Overlook • 5 Candlestick Charting Patterns You Must Learn as a Trader • 9 Bullish Candlestick Charting Patterns with Market Examples
  19. 19. | 1800 468 278 Bearish Candlestick Pattern Video Tutorials (Click here: candlestick-patterns.aspx) • 9 Bearish Candlestick Charting Patterns with Market Examples • Powerful Early Reversal Candlestick Patterns Every Trader Should Know • Discover Why Forex Candlestick Charts Differ from Stock Charts • Discover How a Single Candlestick Can Tell You a Story
  20. 20. | 1800 468 278 How to Build a Solid Investment Portfolio (Click here: a-rock-solid-investment-portfolio.aspx) • Essential Valuation Strategies to Improve Your Portfolio • How to build and manage a share portfolio • What to look for when buying a stock • Three key metrics to measure a company • Common reasons for stocks falling
  21. 21. | 1800 468 278 5.0 Weekly economic calendar
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  25. 25. | 1800 468 278 7.0 Disclaimer Please note that you are receiving this report complimentary from Invast Financial Services Pty Ltd (AFSL 438 283). Invast staff members may from time to time purchase securities which are included in this or future reports. The authors of this report may or may not be holding a position in the securities mentioned. Please note that the information contained in this report and Invast's website is of a general nature only, and does not take into account your personal circumstances, financial situation or needs. You are strongly recommended to seek professional advice before opening an account with us. General Disclaimer: This newsletter contains confidential information and is intended only for the person who downloaded it. You should not disseminate, distribute or copy this newsletter. Invast does not accept liability for any errors or omissions in the contents of this newsletter which arise as a result of downloading this newsletter. This newsletter is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any financial product. Invast Financial Services Pty Ltd is regulated by ASIC (AFSL 438 283 | ABN 48 162 400 035).
  26. 26. | 1800 468 278 Risk Warning: It's important for you to read and consider the relevant Product Disclosure Statement, and any other relevant Invast Financial Services Pty Ltd documents before you decide whether or not to acquire any financial products listed in this email. Our Financial Services Guide contains details of our fees and charges. All these documents are available here on our website, or you can call us on +612 8036 7555. CFDs and Foreign Exchange are leveraged products and carry a high level of risk and you can lose more than your initial deposit so you should ensure CFD and Foreign Exchange trading meets your personal circumstances. General Advice Warning: Being general advice, this newsletter does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. *Distributed with the permission of