Iran has a blunt warning for its neighbors. If the U.S. and Israel start bombing again, Tehran says it will hit Gulf airports, pipelines and other civilian targets. Fresh Middle East tensions pushed oil higher, the Journal said. The December crude contract closed at $99.47 on Thursday, Oct. 22, its highest since May.
Iran has sent the message in public and through diplomats, Benoit Faucon and Alexander Ward report. It's meant to scare off an attack. The danger is real too, they write. Early in the war, Iranian strikes reached airports in Dubai, Kuwait and Bahrain and a gas plant in Qatar. Houthi militants have hit Saudi refineries. A drone attack launched from Iraq shut Saudi Arabia's East-West pipeline for days. President Trump has warned of a possible U.S. strike on Iran after the Nov. 3 midterm elections. The State Department has ordered nonemergency staff and their families out of Saudi Arabia.
More barrels, less cushion
Here's the odd part. Oil is flowing well. Middle East shipments, through Hormuz and around it, averaged more than 24 million barrels a day in the week through Oct. 18. That's above the prewar 23.3 million, ship tracker Kpler says. Saudi Aramco wants its East-West pipeline, which skirts the strait, to carry 10 million barrels a day, up from about 7 million. But Aramco's chief, Amin Nasser, says the world's oil stockpiles are still too low. He puts the supply lost in the crisis at about 3 billion barrels. Iran's own cushion is gone. It had about 135 million barrels stored at sea when the war began. By mid-October that floating stash was empty, Kpler says.
Moving oil costs more, which keeps prices up. A supertanker trip from the Gulf to China cost near a record $37.37 a barrel this week, by Kpler's count. Insurance against war damage now runs up to 10% of a ship's value, up from under 3%, Windward says. JPMorgan's Natasha Kaneva says April's problem was too little crude. “In October, it is the cost of moving it.” The administration has reportedly weighed easing tanker sanctions to bring down record freight rates. In a Wednesday op-ed, former Treasury sanctions official Miad Maleki argued for letting friendly shippers buy Iran's idle tankers for Hormuz runs.
Our read
This is Investments/Risk (IN04), and it's the reason we hold energy. Oil can jump on a threat even while more barrels move than before the war. A hedge is built for that gap between supply and fear, and it's doing its job. ExxonMobil, Chevron, ConocoPhillips and EOG all touched new 52-week highs on Thursday, the paper's tables show. Energy is held at weight. Chevron (CVX) is in 37 books, ExxonMobil (XOM) in 34, Cheniere (LNG) in 20, ConocoPhillips (COP) in 17, EOG Resources (EOG) in 15 and Valero (VLO) in 12. Nothing added. A hedge cuts both ways, so we don't add to it on a hot day. If the Gulf calms down and more tankers sail, the same holdings could give some of it back.
Now look at your own energy slice. The big energy-stock fund (XLE) is up 51.1% this year, and crude is up 73.23%, by the paper's tables. A small energy slice set in January may be a much bigger one now. This week, open your 401(k) or IRA and compare your energy fund's share today with the target you wrote down. If it has drifted well past the target, the hedge has started to turn into a bet. That's worth a talk at your next review. An umbrella should be sized for the storm, not so big you can't see the road.