IWar3: Iraq + Oil Status 26 June 2014 War Room. HiddenLevers War Room Open Q + A Macro Coaching Archived webinars CE Credit Idea Generation Presentation.

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Presentation transcript:

iWar3: Iraq + Oil Status 26 June 2014 War Room

HiddenLevers War Room Open Q + A Macro Coaching Archived webinars CE Credit Idea Generation Presentation deck Product Updates Scenario Updates

I.Market Update II.Middle East TurmOIL Scenarios III.History of Middle East Oil Shocks IV.Energy Exposure – Good + Bad iWar3: Iraq + Oil Status

HiddenLevers MARKET UPDATE

Market Update Bill Gross losing it Rates divergence – EU/UKDubai Market Crash Winter devoured Q1 GDP sources: HiddenLevers, Forbes, Bloomberg, WSJ, BBC News, Business InsiderForbesBloombergWSJBBC NewsBusiness Insider Q Rate Hike?

Macro Snapshot GDP is still positive + home prices rising = bond market signals no fear at all! -2.9%

MIDDLE EAST TURMOIL – SCENARIOS HiddenLevers

iWar3 – Mapping the Players African Warlords US Tea Party Authoritarian Democratic ExtremistLegit Govt GOP/Dems Al Qaeda Taliban China Government Occupy Wall Street Latin America Drug Cartels Iraq Government source: HiddenLevers, Foreign PolicyForeign Policy ISIS

Conflict Contained Iran + US + Syria stable Iraq good for all three recent uptick in Oil burns off US involvement only diplomatic oil fields NOT in hands of ISIS extremists Iraq govt more inclusive or replaced sources: HiddenLevers, New Yorker,New Yorker $95usd Oil = 95usd iWar3 Civil war, not anti-US insurgency

US Strikes Raise Tensions firepower will not fix Iraq situation Overt US actions ruin Iran detente Arab Spring 113usd high Iraq matters more than Russia Ukrazy Oil = 115usd sources: HiddenLevers, New YorkerNew Yorker $115usd Israel will not get involved

War Engulfs Gulf Iraq govt gone failed state Oil all-time high $135usd look for burning oil fields Easy tell Baghdad in ISIS control sources: HiddenLevers, Fox News NY TimesFox News NY Times Lebanon civil war 15 years Oil = 150usd + distinct from Iran nuclear threat $135usd

Scenario: Middle East TurmOIL Good conflict contained Bad US strikes raise tensions Ugly war engulfs gulf If the conflict remains in Syria and outside of major Iraqi oil fields, the market eventually forgets. Absent further risk to oil fields, US strike only raises oil risk premium mildly. If oil fields in southern Iraq or Kurdish-Iraq are set aflame or taken offline, oil prices will spike substantially.

HiddenLevers HISTORY OF MIDDLE EAST OIL SHOCKS

Middle East Oil Shocks – Never Forget sources: HiddenLevers Levers OPEC Embargo Iran Revolution 2011 Arab Spring iWar1iWar2 Oct ‘73 - Mar ‘74Apr ‘79 - July ‘80Jan ‘11 - Feb ‘12July ‘90 - Oct ‘90Mar ‘03 - July ‘08 Oil +135%+166%+30%+95%+335% S&P -17%+20%+5%-15%46% Gold +76%+182%+29%+10%+179% 10 Year Rates +11%+21%-44%-8%0% USD Index % +135%+30%

Middle East Oil Shocks – iWar1 + iWar2 sources: HiddenLevers, CNNCNN iWar spike: US invaded Iraq - retreat: Iraq pushed out of Kuwait iWar spike: ME tension + rising speculation + USD down - retreat: Iraq drilling ban ends + oil bubble pops + financial crisis +95% +335%

US Withdrawal from Oil Addiction sources: US Dept of Energy EIA, USA TodayUS Dept of Energy EIAUSA Today Shale oil explosion is driving US oil production back toward all time high Oil imports have fallen below 9M bbl/day from peak of 15M Production has risen so much that White House is ending ban on US oil exports

US Withdrawal from Oil Addiction source: Our Finite World, Oil & Gas JournalOur Finite World Oil & Gas Journal Total US miles driven down 3% from 2007 peak while GDP up 7% Less driving + better mpg oil demand down 15% from peak US fuel economy rising after being flat for decades New govt standards require 54 mpg for 2025 model year

Iraq + Oil Status – Recap US + Iraq both Oil Exporters oil shock history = history US oil addiction over --> better policy decisions burning oil fields move the needle

HiddenLevers ENERGY EXPOSURE – GOOD + BAD In Azerbaijan, bathing in pure crude is encouraged

Bad Oil Exposure – Don’t trust ETF marketing source: HiddenLevers Oil Futures ETFs Don’t Track Oil. Physical Oil Funds Don’t Exist. Gold ETFs Track Gold Perfectly. Physical Gold Easy to hold. Physical Oil difficult to hold.

Good Oil Exposure – High Oil Correlation Get investment ideas across industries, ranked by Oil Beta

Macro Picture – Global Deflation Risk sources: HiddenLevers, EconomistEconomist technology automationcommodities sinking first world baby bust decreasing birth rate sluggish GDP growth So far, deflation trumps geo-political worries

HiddenLevers Use Cases scenario Oil Prices scenario Global Deflation iWar3 – Iraq + Oil Status macro theme High Oil Beta Funds data center Commodities scenario Middle East TurmOIL

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