Rising Tensions, What Does It Mean for Investors?

By Martin Straith

Unfortunately, our forecast over the past couple of years for increased geopolitical tensions is coming true. We have stated a number of times that when ruling governments are in dire financial shape, the politicians realize that they have no solution to solve the financial problems, so they often look for diversions to take the focus away from them.

Certainly Russian President Putin has been a master of these diversions, first invading Ukraine & now with his move in Syria. We are also very suspicious of why Turkey shot down a lone Russian jet. Seriously, there is no way they would have thought that if Russia wanted to attack them, Russia would only send one jet.

Turkey is in horrible shape financially, so we have to wonder if they want to use this incident to unite the people against Russia & divert their attention away from their domestic problems. As more & more countries fall deeper in debt, watch for more of these provocations against other foreign countries.

These politicians feel trapped & they are very dangerous as their main goal is to maintain power at any cost.

This shooting down of a Russian fighter jet follows the ISIS-led attacks in France & the downing of a Russian airliner, & likely the hotel strike in Mali.What we are seeing is a rapidly spreading of attacks, no longer isolated to just the Middle East.

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Is This the Bottom for Oil?

By Martin Straith

Fundamentally, we will not see a significant rise in oil prices until we got a correction in the supply/demand ratio.

The latest data from the Energy Information Administration (EIA) shows that OPEC is now winning the market share war as US production is beginning to see significant declines. In April, US shale production peaked at 9.7 million barrels per day & has now fallen to 9.18 mb/day, a drop of over 500kb/day in less than 6 months.

While that is significant, we can see on the following chart that US production is still at the levels exceeding the 1985 high.

Oil rig counts are continuing to fall dramatically, with last weeks Baker's Hughes Rig Count down 4 rigs to 572. This is a dramatic drop off from the peak of about 1600 a year ago. As the price of oil increased to over $100 per barrel, producers ramped up production, wanting to cash in on these great prices.

As production increased, so to did the supply. Historically, OPEC would cut back on production to maintain a profitable price for oil, but not this time. This time it was the US producers who were pushing up the inventory & driving prices down, so the Saudis decided it was time for these US shale producers to feel some pain. Over the past year, we have seen an all-out game of chicken, where all producers kept pumping out record levels of oil.

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