Are You Ready for $250 Oil?

This morning, I received a text from a very smart colleague who has substantial investments and expertise in the oil and gas industry. And when this man alerts me to something he thinks I should know, I pay attention. In the text, there was a link to the following CNBC story with this ominous headline: “How oil could spike to $150, even $250 if Israel-Hamas war escalates, according to Bank of America”.

Now, one doesn’t even need to read any further to get a bit of a chill down the spine at the prospect of an oil spike of such magnitude.

Of course, if you are long oil stocks, E&P (exploration and production) stocks or crude oil ETFs/futures contracts, that chill down the spine was more likely felt as the tingling adrenaline surge of potentially big gains.

The thesis here with respect to these big oil price spike predictions is that, if the conflict between Israel and Hamas escalates into a wider conflict in the Middle East, that would likely cause big supply disruptions. According to analysts at Bank of America, any escalation involving Iran could trigger a jump in crude prices from $120 to $130 per barrel.

While that high a cost of oil per barrel would be ugly for the global economy, it would look like a teenage beauty queen in comparison to the extremely ugly scenario of oil prices spiking to some $250 per barrel.

The theory here is that if Iran gets more involved in the conflict (it already supports Hamas, militants in Syria and the Lebanese militant group Hezbollah — all three of which have fired rockets into Israel since early October), that would trigger a retaliatory strike on Iran by Israel and her allies, i.e., the United States.

Here’s the money quote from the CNBC article that’s downright frightening:

“Bank of America warned that any retaliation against Tehran could risk the passage of vessels through the Strait of Hormuz, a vital channel for the world’s crude. If the strait is closed, oil prices can spike above $250 per barrel, the bank said.”

Bank of America’s concerns continued, saying, “While keeping the Strait of Hormuz open is key to oil market stability because 17 million barrels cross it every day and prices could spike above $250/bbl if it shuts down for an extended period of time, there are plenty of other energy choke points.”

Now, I am not sure I even need to point out to you the gravity of this situation for the broader equity markets, but I will do so here for the sake of clarity and unambiguity.

A spike in oil prices of this magnitude would certainly send stocks into a protracted bear market, and the surge would easily wipe away all of the year-to-date gains in the major domestic industries.

The silver lining to this scenario would be the aforementioned move higher in oil stocks, E&P stocks and oil futures. The other silver lining would be a constriction of economic activity that would cause the Federal Reserve to reverse course on monetary policy despite the inflationary (or in this case, stagflationary) influence of Mt. Everest-altitude oil prices.

The way I see it, if you want to be ready to deal with whatever the craziness in the oil patch brings to the equity markets, and the economy at large, you are going to have to have a plan in place that keeps you in stocks when things are trending materially higher, and that gets you out of stocks when the material trend is lower.

Fortunately, our flagship newsletter advisory service Successful Investing is just such a plan — and it’s been helping investors expertly navigate wars, oil spikes, bear markets, political unrest and all sorts of unknowns for more than 40 years!

So, if you want to sleep well at night even in the face of $250 oil, then you need to get on the plan today with Successful Investing.

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Don’t Let the Hero Perish

“Do not let the hero in your soul perish in lonely frustration for the life you deserved and have never been able to reach. The world you desire can be won. It exists… it is real… it is possible… it’s yours.”

–Ayn Rand, “Atlas Shrugged”

During times of personal, professional and societal tumult (i.e., the usual state of nature), it’s rather easy to succumb to feelings of loneliness, frustration and to feel less-than heroic. But DO NOT allow yourself to descend into those feelings. Yes, the world is a dragon, but it’s a dragon we can tame — if we employ the requisite knowledge, discipline and courage needed to prevail.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods