The first black swan will come in 2020: tensions in the Middle East lead to soaring oil prices

category:Finance
 The first black swan will come in 2020: tensions in the Middle East lead to soaring oil prices


Most hedge funds on Wall Street are betting that the geopolitical risk premium for crude oil continues to rise. Edward bell, commodities analyst at Emirates NBD bank, told reporters. After all, after the U.S. attack killed senior Iranian officials, there were concerns that Iran would soon take tough counter measures (including the possible blockade of the Strait of Hormuz and the Middle East crude oil export line), leading to a sharp decline in global crude oil supply.

Reporters have learned from many sides that the main capital force driving the sharp rise of NYMEX crude oil futures on January 3 is just a lot of event driven hedge funds on Wall Street. By contrast, corporate hedging has not yet entered the market.

A head of the hedging Department of a domestic private petrochemical processing enterprise told 21st century economic news that at present, the company thinks that the rise of oil price may be a short-term phenomenon - as tensions in the middle east tend to subside, the oil price will soon return to the reasonable fluctuation range before this. So they dont think its necessary to chase up oil futures hedging. However, they will always pay attention to the situation in the Middle East, and once there is any sign of deterioration, they will quickly start new hedging measures.

In fact, today, I bought some NYMEX crude oil call options in the overseas crude oil options market with an execution price of US $60 / barrel, which is also part of the risk prevention against the deterioration of the situation in the Middle East and the continuous soaring oil price. The head of the hedging Department of the above-mentioned domestic private petrochemical processing enterprises said on January 3.

This is also the situation that OPECs investment capital, which bought up oil price due to its new production reduction agreement, is most pleased to see, because they will achieve the expected return at a faster speed. He speaks frankly.

Different parties reactions

In the eyes of a number of Wall Street hedge fund managers, the biggest beneficiary of the sudden tension in the Middle East is the capital betting that OPEC will adopt a new production reduction agreement to buy up oil prices.

CFTC data shows that as of the week of December 24 last year, asset managers such as commodity hedge funds increased their net long positions of 7622000 barrels of NYMEX crude oil futures compared with the previous week, and the net long positions of NYMEX crude oil futures of crude oil producers and traders increased by 9691000 yuan compared with the previous week due to OPECs new production reduction agreement in January 2019 (including an additional 500000 barrels / day of production reduction in the first quarter) Barrels.

There was speculation that they were behind the January 3 rally in oil prices, he said David Gilmore told reporters. But the speculation quickly broke, because the market soon found that the real driving force behind it was the event driven hedge fund with quick market reaction.

Reporters learned that in most event driven hedge fund investment models, tensions in the Middle East have long been an important factor in buying up oil prices. Once the situation in the Middle East is suddenly tense, the weight of this factor in the investment model will suddenly increase significantly, guide investment model automatically buys a large number of NYMEX crude oil futures long positions to chase up oil price profits, and the whole investment decision-making and trading process does not even need the manual operation of traders.

Event driven hedge funds that automatically chase up oil prices reached at least $700 million to $800 million during the sudden surge of more than 4% in NYMEX crude oil futures prices between 10:00 and 11:00 in the morning of January 3. David Gilmore told reporters that in fact, the amount of speculative funds to buy up oil prices is not high. The reason is that the situation in the Middle East is suddenly tense. A large number of event driven hedge funds in Europe and the United States did not participate in the Asian trading period, so they did not set off a greater increase in oil prices. However, with the coming of trading hours in Europe and the United States, it is not excluded that event driven hedge funds in Europe and the United States continue to increase their long positions in NYMEX crude oil, boosting the continued rise of oil prices.

Compared with event driven hedge fund funds, corporate hedging is late.

A number of traders in the hedging Department of domestic chemical enterprises told reporters that although the top executives of the enterprises thought that the death of high-ranking Iranian officials had a huge impact on the stability of the Middle East and the security of crude oil exports, they were reluctant to gamble on the continued sharp rise of oil prices before the geopolitical risks in the Middle East were clear.

After all, before that, some domestic private chemical enterprise owners took advantage of the tense situation in the Middle East to buy up crude oil futures arbitrage, but failed miserably, so this time we learned a lesson, dare not rush to chase up. The head of the hedging Department of the above-mentioned domestic private petrochemical processing enterprises disclosed. However, some chemical companies bought some overseas crude oil option products on January 3 to avoid the rising operating cost caused by the soaring oil price by locking in the future crude oil raw material purchase cost.

Geopolitical risk premium divergence revives

With the situation in the Middle East suddenly tense on January 3, how high should the geopolitical risk premium of oil price be? It makes many differences among investment institutions on Wall Street tend to expand.

Maneesh Deshpande, strategist of Barclays, told reporters that under the current tense situation in the Middle East, the geopolitical risk premium of crude oil is at least $6-8 per barrel. If Iran takes strong counter measures (including the possible blockade of the Strait of Hormuz to block the Middle East crude oil transportation line), the premium will rise to $12-15 per barrel.

However, this view has been refuted by many financial institutions.

According to helima Croft, head of global commodity strategy at RBCC capital markets, oil prices are now well factored into the geopolitical risk premium range. Because the oil price valuation model of his institution shows that the trading price of NYMEX crude oil futures has always been higher than the actual equilibrium price by 5-6 US dollars / barrel since the US government re imposed sanctions on Iran, which indicates that the reasonable premium for geopolitical risk of crude oil in the global financial market is 5-6 us dollars / barrel despite the tense situation in the Middle East in the past period.

The underlying reason behind this is that the negative interest rate environment has led to a sharp decline in the global fixed income asset yield, which has dragged down the performance of the global asset management institutions. Therefore, when the situation in the Middle East suddenly becomes tense and the crude oil market has a more certain opportunity to buy up profits, these institutions will not miss this opportunity to enhance investment returns. David Gilmore told reporters. Based on this investment profit logic, many asset management institutions will continue to chase up gold profits, because as long as the situation in the Middle East is suddenly tense, a large number of rich Middle East funds will flow into gold to avoid risks, which can also provide considerable investment returns for the above-mentioned asset management institutions.

As of 19:00 on January 3, the main contract price of Comex gold futures hovered around $1551.38/oz, up more than 1.4%. It once reached the highest value of $1553 / oz since September 5, 2019.