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 The market’s down big this morning, which opens up more possibilities for income trades, so we’ll cover that and more [tap to join us for Market Masters]!
The geopolitical chessboard just flipped over this past weekend.
Iran’s Supreme Leader has been, let’s say, permanently removed from the game. In response, Iran is throwing a fireworks party across the Middle East targeting pretty much every U.S. ally and asset they can try and hit.
Right in the middle of all this chaos sits a 21-mile strip of water called the Strait of Hormuz — and it matters a whole lot to your wallet. That little strip of water is the world’s most important energy choke point. One-fifth of all the oil the world burns and nearly 20% of the world’s liquified natural gas flows through this narrow corridor every single day.
And right now? It’s been shut down, halted. Goldman Sachs, in a note that probably had smoke coming off the keyboard, is already pricing in an $18-per-barrel war premium. Barclays is whispering about $100 oil and some are saying $130 if this keeps getting worse.
Think about this situation like an hourglass — a giant global hourglass. The narrow part is right there in the Strait of Hormuz. All the cheap abundant energy is the sand in the top bulb and the global economy sits at the bottom waiting to get filled. When the sand flows freely, everything’s great.
But right now, somebody just pinched the middle even tighter.
If the strait is shut down for a month or longer, we’re looking at a $10 to $12 jump in oil prices. If it’s a longer-term disruption, the models simply break down. Prices don’t just go up — they go absolutely vertical. They have to rise enough to cause a recession because that’s the only way demand gets destroyed enough to keep the system in balance.
The Real Monster Returns Hide in the Tanker Trades
The obvious plays are the big oil producers — Exxon Mobil (XOM) and Chevron (CVX) are probably going to make a killing. Higher oil prices go straight to their bottom line. It’s the simplest, most direct way to play this but it’s also a very crowded trade now.
The real smart money play? Oil shipping tanker companies.
If the main route is blocked, ships have to take the long trip around. A trip that normally takes one week through the strait now takes three weeks going the long way. That means you need three times the ships to maintain the same capacity. Basic supply and demand — prices could go to the moon.
The cost to charter a very large crude carrier from the Arab Gulf to China has already tripled in the past month. These companies are the toll booth operators of global chaos. They don’t care what’s in the ships or who’s buying what — they get paid to move the product.
Companies like Frontline (FRO), TK Tankers (TNK) and DHT Holdings (DHT) have already been moving. But if this disruption lasts longer than people expect, their earnings could look absolutely ridiculous.
The Natural Gas Trap You Need to Avoid
On the losing side, airlines like Delta (DAL) and United Airlines (UAL) are going to get crushed. Their biggest cost input is jet fuel and if jet fuel goes parabolic, their margins get flattened.
But here’s the biggest trap to avoid: the natural gas fakeout.
You’re going to hear about energy prices spiking and some traders will pile into anything energy-adjacent. Bad move.
Goldman Sachs has been clear — the impact on U.S. natural gas will barely be a hiccup. The U.S. is a net exporter of LNG and our export terminals are already running at full tilt. A global price spike doesn’t mean U.S. natural gas is going to follow in lockstep.
Don’t get suckered into buying something like UNNG thinking it’s the same trade as oil. It’s not.
The hourglass is pinched and the sand’s barely moving. Position yourself accordingly.
Jeffry Turnmire
Jeffry Turnmire Trading
I host my Morning Monster livestream at 9:15 a.m. ET each weekday on YouTube, and then 30 Minutes of Awesome at 5 p.m. ET each Tuesday!
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I’m just a regular dude in Knoxville, Tennessee: a husband, father, civil engineer, urban farmer, maker and trader.
I’ve been at this trading thing with real money for 20-plus years, and started paper trading over 35 years ago. I have a knack for making some epic predictions that just may very well come true. Why share them? Because I like helping other people — it’s the Eagle Scout in me.
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. What to Expect From a Wartime Market
The Iran war is causing a bit of an upheaval on Wall Street.
Some of your favorite tech names are beginning to see less and less of Wall Street’s “love” as capital flows into real economy stocks.
I’m talking safe sectors like:
- Energy
- Health Care
- Food & Beverage
If you’re trading these wartime markets, it’s important your setups don’t wipe out your account when a particular stock sees significant drops.
The way I trade, I’m able to not just stay in the game, but also find opportunities to target extra cash — EVEN when the market is plummeting.
Granted, I can’t make absolute guarantees when it comes to the market…
But if you’d like to do the same…
I’ve built tools to help make an approach like this accessible to just about anyone.
If you’d like to see what I regard as the best one…
