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Cash Is Always King in Market Wasteland

Cash Is Always King in Market Wasteland
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Monday, 18 January 2016 11:34 AM Current | Bio | Archive

International sanctions on Iran have been lifted after the International Atomic Energy Agency (IAEA), which is an international organization that seeks to promote the peaceful use of nuclear energy and to inhibit its use for any military purpose including nuclear weapons, said its inspectors had verified Iran had taken the required steps and complied with a deal designed to prevent it developing nuclear weapons.

It may be good to keep in mind the following U.S. sanctions will remain in place under the Iran deal:
  • Sanctions on missile technologies and conventional weapons;
  • Terror list sanctions that identify Iran as state sponsor of terror;
  • Targeted sanctions on anyone connected with Iran’s support of terror;
  • Authority to target Iran’s development of ballistic missiles;
  • Authority to target Iran’s human rights abuses and censorship,
  • Authority to sanction Iran’s destabilizing regional activities, including Syria and Yemen.
So, under the Iran deal, the U.S. will “only” lift Nuclear-Related sanctions on Iran

The U.S. Treasury has already informed about the sanctions taken against those involved in ballistic missile procurement for Iran.

Interestingly, Iran has suddenly become $150 billion richer …

Not all Arab countries in the Gulf got excited with the deal.

Abdullah Al Shayji, a professor of political science at Kuwait University, commented on the deal: “Kerry claims that the world is safer today. It seems that Kerry believes that he is playing the role of the good guy in a Hollywood movie where the good guy wins.”

Anyway, oil remains unsurprisingly weak as Iran’s representative to the OPEC producers' group, Mehdi Asali, was reported by the Iran state news agency IRNA as saying: “We have not moderated our plans regarding increasing output when sanctions are lifted. It will be increased by 500,000 bpd (barrels per day), and by another 500,000 bpd shortly after that.”

We know at present the world is producing 1.5 million barrels a day more than the world is consuming, so now with Iran's intention to add another million barrels per day over the next 12 months, which is doable especially when we take into account its what’s called “floating storage” that is estimated at about 46 million barrels that can be delivered immediately.

No doubt, pressure on the oil price is et to continue over the short to median term as the oil glut is expected to increase further.

Investors shouldn’t be surprised if oil slides further to the $20 per barrel area, which is not the same as the bottom of the oil price falling out, which is caused by, for example, volatility spikes, panic, etc., because under such circumstances we could dip, albeit briefly, under the $20 mark, which, at least I think, could represent a long-term buying opportunity for those investors who have cash available and have put their financial intermediaries on watch.

Looking at the Globex Brent crude futures oil contract settlement prices, we had on Friday the March 2016 contract settling at $28.94 while the March 2017 price settled at $36.58.

When we take into account the cost to store oil on a super-tanker is about $1 to $1.20 per bar barrel per month, we see the current Globex settlement prices over a 1-year period do not cover the storage costs, which gives as an indication markets expect, with what they know today, lower oil prices within a year than the current oil spot prices.

Investors should never forget: “Cash has always been king in market wasteland.”

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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Investors should never forget “Cash has always been king in market wasteland.”
investors, cash, markets, wasteland
Monday, 18 January 2016 11:34 AM
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