Will Israel attack Iran’s oil production? … be careful about getting too bullish in the short-term … the greater “EV/AV” threat to oil … how Luke Lango is investing
Iran made a big mistake tonight — and it will pay for it.
So said Israeli Prime Minister Benjamin Netanyahu in the wake of the Iranian attack on Tuesday that launched hundreds of ballistic missiles into Israel.
For investors, one of the big questions is “will ‘pay for it’ mean an attack on Iran’s oil facilities?”
Earlier today, Israel struck Hezbollah’s intelligence headquarters in Beirut. This came after it issued more evacuation orders in southern Lebanon, signaling a broader ground incursion.
However, as I write, Israel has not directly attacked Iran as it suggested it would. And earlier today, referencing an Israeli attack on Iranian oil facilities, President Biden told reporters, “There’s nothing going to happen today; we’ll talk about that later.”
So, investors are left wondering “what’s coming?”
Iran is the world’s seventh-largest oil producer, accounting for roughly 4% of the global total. Oil is also the lifeblood of the Iranian economy. Without its revenues, Iran would be crippled economically.
This is the precise reason why the Iranian oil complex is likely to be a target of Israel’s attacks.
Here’s CNBC:
“The next turn in this retaliation spiral may very well involve oil – via the degrading of Iran’s oil capacity or Iran’s proxies attacking oil and gas shipping from the Persian Gulf,” Piper Sandler analysts told clients in a Wednesday note.
Israel might take aim at Iran’s oil industry to hit Tehran’s income and degrade its ability wage war, they said.
And here’s The New York Times:
Israel…could attack Iran’s main oil export terminal on Kharg Island in the Persian Gulf, with the aim of denying the country oil revenue…
[According to Richard Bronze, head of geopolitics at Energy Aspects] “Any significant loss of Iranian supply would be felt in the wider market, as Chinese buyers would need to find alternative supplies, increasing competition and pushing up prices.”
This morning, Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, said that if Israel destroyed Iran’s entire oil capacity, he could see oil going to $200 a barrel or more.
While oil could jump materially higher under that scenario, I don’t see $200 on the horizon
If the violence is contained purely to Iranian oil facilities, I don’t see the math supporting $200 oil. Perhaps panic sends it higher temporarily but remember the supply/demand imbalance in today’s global oil market…
As we detailed in our Monday Digest, today’s global oil market is characterized by oversupply. On top of that, the Saudis just announced they’ll be adding even more supply to the market in December.
So, despite the recent pop in oil prices (it’s up another 4% today as I write), it’s unlikely that an attack on Iranian oil depots would result in sustained triple-digit oil due to the eagerness of OPEC+ countries to fill the gap. That said, a wider war changes the calculus.
Back to The New York Times:
Iranian attacks on oil installations in nearby states like Saudi Arabia and the United Arab Emirates would be of greater concern, said Helima Croft, an analyst at RBC Capital Markets, an investment bank.
“Iran and its proxies could potentially target energy operations in other parts of the region in order to internationalize the cost if the current crisis devolves into an all-out war,” she wrote in a note.
Barring that development, we’re watching this closely, but expecting this price bump to be temporary in nature.
Another reason we’re not cannonballing into a brand-new oil trade today is the potential oil price war on the horizon
Saudi Arabia is not happy.
Yesterday, we learned that the Saudi oil minister is threatening $50 per-barrel oil if so-called “cheaters” within OPEC+ don’t respect production limits the oil cartel has established.
Let’s jump to The Wall Street Journal:
During a conference call last week, Prince Abdulaziz bin Salman, the oil minister of OPEC kingmaker Saudi Arabia, warned fellow producers prices could drop to $50 a barrel if they don’t comply with agreed production cuts, according to OPEC delegates who attended the call.
They said he singled out Iraq, which overproduced by 400,000 barrels a day in August…
The Saudi message was “there is no point in adding more barrels if there isn’t room for them in the market,” said a delegate who attended. “Some better shut up and respect their commitments toward OPEC+.”
Beyond Iraq, Russia and Kazakhstan have also produced more oil than their allotted quotas so far in 2024. Meanwhile, in the background, we have the U.S., Guyana and Brazil all adding to global oil supply.
Put it altogether and the most likely direction for oil over the next 12ish months is down (or flat) barring an all-out war in the entire Mideast.
However, as we detailed in Monday’s Digest, a longer-term case for oil remains bullish due to an inversion of today’s supply/demand imbalance that will likely arrive toward the end of 2025. If you missed that Digest, you can revisit it here.
Now, there is one variable that will be dangerous to oil as we look even farther out on the horizon…
Autonomous/electric vehicles.
As we profiled in yesterday’s Digest, Tesla is holding its “We, Robot” event next week. It’s expected that the company will reveal its first dedicated robotaxi, tentatively called the “Cybercab.”
At the heart of this transportation revolution is a convenient, driverless ride at a fraction of the cost of traditional services. And the potential impact is that more Americans will decide to give up car ownership due to the cost savings of paying per ride.
As we highlighted yesterday, according to a 2022 study by McKinsey & Company, 25-30% of urban dwellers would consider using shared autonomous vehicles as their main transportation mode if it were widely available.
Now, at first, while such a shift would likely reduce the number of cars in the world, it wouldn’t necessarily reduce oil demand. That’s because most autonomous vehicles on the road today are gas-powered; the autonomous technology is often retrofitted onto existing internal combustion engine models.
So, while the number of cars in the world would likely fall, the number of absolute rides (directly impacting oil demand) won’t decrease.
But consider the leaders of this autonomous/EV revolution: Tesla, Waymo (Alphabet’s autonomous vehicle company), and Bidu. And what powers their autonomous car fleets?
Tesla’s car and robotaxis are fully electric. Bidu is all electric. And Waymo mostly uses EVs in its fleet. Its Jaguar I-PACE is a fully electric SUV, and its Chrysler Pacifica minivans are plug-in hybrids.
This means that if/when our world shifts from car ownership to a “pay per ride” model, that’s a de facto step toward electric.
Now, consider that the transportation sector accounts for over 50% of global oil consumption. So, as the transportation sector shifts toward a per-per-ride model, and the pay-per-ride leaders are all electric, you can do the math.
Let’s go to our technology expert Luke Lango for where we are in this shift:
The self-driving cars are here. They are spreading rapidly. And they’ll likely become a global ubiquity, possibly entirely replacing human-driven cars, trucks, and buses at some point…
[It’s not just Tesla and Waymo that are] swiftly making self-driving cars a reality.
Aurora Innovation (AUR), an autonomous trucking company, has partnered with several major firms like Paccar, Volvo, and Uber Freight to develop fully self-driving trucks. Another startup – Kodiak Robotics – is also focused on making autonomous big rigs.
Both are preparing to launch fully autonomous trucks on public roads in Texas later this year (without safety drivers). That means that in just a few months, Texans could see a self-driving 18-wheeler hauling goods from city to city. Aurora also plans to launch autonomous trucks in the Phoenix area soon as well.
Meanwhile, in China, Baidu (BIDU) has launched an autonomous ride-hailing service called Apollo Go. It appears to be just as big as Waymo, completing nearly 100,000 rides per week…
Folks, we believe the writing is on the wall.
With Waymo and Apollo Go each completing about 100,000 autonomous rides per week and expanding rapidly… Aurora and Kodiak preparing to launch fully autonomous trucks on public freeways within months… and Musk set to unveil Tesla’s own self-driving Robotaxi next week… we think it is entirely safe to say…
The Age of Autonomous Vehicles has arrived.
Join Luke this coming Monday at 10 AM EST for a deeper dive into this enormous economic transition
Luke will be detailing all the recent groundbreaking developments in the autonomous vehicle industry, offering a sneak peek at robotaxis and how they’re going to transform transportation, and explaining how to invest in this shift.
Now, circling back to an oil investment/trade, let’s be clear…
This transition away from oil won’t happen tomorrow. The International Energy Agency (IEA) forecasts that oil demand won’t plateau (or possibly decline) until sometime in the 2030s.
Clearly, that’s plenty of time to make a boatload of money from Big Oil. Just beware of the bear-bull-bear sandwich from a timing perspective…
In the near-term, barring a full regional war in the Mideast, we have bearish influences from too much supply and a potential OPEC+ price war…
But from about 18 months out throughout most of this decade, we’ll have bullish influences from a reversal of supply/demand (which we detailed in this Digest) …
But long-term, we’ll revert to bearish influences based on the rise of autonomous/pay-per-ride electric technology.
We’ll help you navigate this timeline here in the Digest.
In the meantime, don’t overlook the enormous returns that are likely to reward investors who position themselves appropriately in these early days of the autonomous/robotaxi revolution. In fact, there’s one on Luke’s radar he’ll talk more about this coming Monday. Click here to reserve your seat today.
Have a good evening,
Jeff Remsburg
