The Middle East Powder Keg Ignites Oil

Most people don’t know the story of the Sounion. 

With a gross tonnage of 84,844 tons and spanning 274 meters from bow to stern, the Sounion floated out of a South Korean shipyard back in 2006 and has been sailing the world’s oceans laden with crude oil. 

At least, it was up until six days ago. 

You see, that’s when a pair of small boats carrying Houthis approached the tanker and attempted to board it. When that attack was unsuccessful, the Houthis struck the ship with rockets, disabling it. 

A few days later, this is what the Sounion looked like:

Welcome to the Middle East powder keg.

Don’t worry, you’re not late… this show has only just begun. 

Earlier this week, satellite images of the Sounion showed that the vessel was still burning. 

Now, I know this event didn’t appear on many peoples’ radar. After all, another Houthi attack in the Red Sea — what’s the big deal, right? 

For the more veteran members of our investment community, perhaps you might remember another oil tanker by the name of the Exxon Valdez. I imagine by now that you know where this story is going. 

Except there are a few differences to keep in mind. At the time, the Exxon Valdez spill in Prince William Sound was an environmental disaster, spilling roughly 257,000 barrels of crude into the sea. 

If you think that was bad, now consider that the Sounion has the potential to spill more than a million barrels of oil equivalent into the Red Sea!

However, the story of the Sounion is just part of the fuse that has been lit threatening to ignite the Middle East powder keg. 

The Middle East Powder Keg Ignites

I know it’s easy to get lost in the rush of geopolitical volatility that suddenly bursts forth onto our newsfeeds, but that’s precisely what has taken place over the last few days. 

Look, I don’t begrudge anyone for not keeping track of the Sounion, because the possibility of one of the worst ecological disasters in history is being overshadowed by the rest of the chaos taking place in the region. 

From Israel’s pre-emptive strike on Hezbollah to Hezbollah’s most recent retaliation via missile strikes, the scariest part is that nobody knows what will come next; will Iran throw its hat into the ring and enact its “duty to take revenge” for the assassination of a Hamas leader in Tehran? 

This is the geopolitical game being played, and all the cards haven’t been dealt yet. 

What we CAN see is the consequences of this volatility. Since the attack on the Sounion, WTI crude prices have surged 8% and are once again making a run for the $80/bbl mark; front-month contracts of Brent have already broken it.

I wish I could tell you this was all, but I think we may see WTI prices break past that threshold in the coming days, because the crises keep piling on. 

Yesterday, another spike in crude is taking place in a different country: Libya. 

We know that Libyan oil production has been shaky at best for a long time, and the market should never get its hopes up for stable Libya output. Here’s a look at Libya’s monthly crude production between 2008 and 2022:

This time, however, the eastern-based government in Tripoli declared force majeure on ALL of its oil fields, ports, and facilities — oil production has fallen to ZERO until further notice. The force majeure was announced as the Central Bank of Libya came under attack and has disrupted the entire state’s financial transactions. 

I guess when it rains, it pours. 

The problem is that we’ve already been heading toward a tighter supply/demand imbalance,with demand expected to outpace supply at the end of the year. 

That puts a premium on those domestic drillers that still have strong upside potential for boosting output. And right now, there’s only one place I’m looking at — I strongly recommend you check this one out for yourself.

Until next time,

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

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