Iraq: Boots on the ground, pain at the pump, and more of both on the way

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On Tuesday, a small force of 170 U.S. soldiers entered Iraq, with another 100 close behind. The troops are there, according to President Obama, to defend the U.S. Embassy in Baghdad as well as other key U.S. interests. The situation is evolving quickly, making it difficult, at times, to determine what news the markets are reacting to. Nevertheless, it appears as though the deployment calmed the oil market, at least temporarily; the July delivery price for U.S. crude fell 18 cents on Tuesday to $106.72.

Warning: those hoping for lower gas prices may wish to stop reading now.

Also on Tuesday, the International Energy Agency gave the market the bleakest prediction yet of the impact of the military crisis on Iraq's prospects for producing oil over the long-term. Reuters quoted IEA executive director Maria van der Hoeven as saying, "Within OPEC, Iraq remains the main source of most of the expected capacity growth, but this expansion looks increasingly at risk."


If the statement left some wiggle room, the numbers forecast by the IEA do not. The agency now expects Iraq's oil production capacity to grow to 4.54 million bpd by 2019-a huge cut from the 9 million bpd by 2020 previously forecast. The IEA's grim assessment came with an equally grim conclusion: The price of oil will likely never again fall below $90 per barrel.

And with that, the dream that gasoline prices in the U.S. might someday drop significantly-long on life support-has quietly been removed from the respirator. In the short-term, the probability of a higher future price of oil gives some advantage to the big five oil companies, BP ( BP ), Exxon ( XOM ), Chevron ( CVX ), Total SA ( TOT ) and Royal Dutch Shell (RDS.A), as it will make it more economically viable for them to continue searching for oil, despite the soaring cost of finding it (as reported Tuesday by The New York Times ). In the long-term, it favors electric car companies, and since there is only one, that means Tesla ( TSLA ).

Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC .


This article was originally published on MarketIntelligeneCenter.com



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , commodities

Referenced Stocks: BP , XOM , CVX , TOT , TSLA

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