Smart Money Is Moving Into Oil Amid Rising Global Tensions

Smart Money Is Moving Into Oil Amid Rising Global Tensions

With the election approaching in November, the news is dominated by stories about politicians and filled with the latest policy statements and missteps of the presidential candidates.

But other stories could be even more important to U.S. consumers.

You’ve likely seen the headlines. There are two major wars underway right now:

“Tehran, Hezbollah vow ‘revenge’ against Israel…”

“Drones Strike Deep in Russia, as Ukraine Extends Its Weapons Range”

These wars can escalate — and history shows they can intensify in unexpected ways, at unpredictable times.

Wars can also lead to stories no one sees coming. That makes sense. Even the smartest weapons can miss their target and cause damage to the people and infrastructure they are trying to protect.

A recent example of that can be seen in this headline:

“Damage to Cables Under Red Sea Highlights Mideast Conflict’s Broader Threat”

Many missed that story, but it’s an important one. The New York Times wrote:

Mysterious damage to vital communications cables under the Red Sea has raised concerns about whether the conflict in the Middle East is now beginning to threaten the global internet.

Just as the waters off Yemen hold crucial shipping lanes, they are also a critical location for undersea cables that carry email and other digital traffic between Asia and the West. Around a dozen cables run through the area, and more are planned.

These bundles of glass fibers, about as thick as a garden hose, “are extremely important,” said Tim Stronge, vice president for research at TeleGeography, which analyzes the telecommunications market. “Over 90 percent of all communications traffic between Europe and Asia goes through those” cables.

Experts believe the damage was likely caused by Yemen’s Houthi rebels.

Before last month, few of us would have thought the internet was at risk from a war waged by non-state actors. Now, we all realize we live in an age of asymmetric warfare, where smaller groups can cause damage that affects thousands, even millions of innocents.

We’re also starting to realize that the risks aren’t going away. This has important implications for investors.

War in the Middle East can quickly escalate, cutting off oil flows from a critical region. War in the Ukraine also threatens the global oil supply.

The smart money in the oil market has noticed this.

In futures markets, large traders are required to report their positions to regulators. Large traders include hedge funds and commercial users who buy oil to use later.

Commercials include refiners who need a steady supply of oil to produce refined products like gasoline. Other consumer users use oil as a hedge. For example, airlines use oil markets to hedge the costs of jet fuel. Their gains in oil can offset higher fuel prices.

Since October 7, when Israel went to war, commercials have increased their holdings by 18%.

This trend shows that “smart money” is concerned about its supply. Price action confirms this is a valid concern. This week, oil prices reached a six-month high.

With the smart money moving into oil, energy stocks have also moved to six-month highs.

Now could be an ideal time to consider oil stocks — before bad news sends the sector to higher highs.

Adam O’Dell has been tracking this sector and discovered one of the best ways to invest in oil’s bullish run. He’s sharing his top oil stock recommendation set to soar. Go here for the full details.

Regards,

Michael Carr's Signature
Michael Carr
Editor, Precision Profits

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