Jeff McIntosh/The Canadian Press
Hey there,
Thanks for reading the weekly Trade Secrets newsletter. It’s been a busy time in the markets and we hope you’re gearing up for our next Trade Off competition. The Globe and Mail’s stock-picking contest is set to begin on March 23, so be sure to sign up here.
But first a programming note: The Trade Secrets newsletter is taking a break next week, and will be back in your inbox on March 24.
This Week in Markets
The oil price is arguably the biggest market story right now. Prices have risen above US$100 a barrel for the first time since 2022. At that time, Russia’s invasion of Ukraine triggered a global supply shock.
This time, investors fear the impact could be much greater. The conflict in the Middle East has disrupted tanker traffic through the Strait of Hormuz, the most important artery in the global energy trade.
Roughly 20 million barrels of oil move through the strait per day, representing roughly 20 per cent of global supply. Just as important, many of the Gulf producers that rely on the strait are also the countries with the most spare production capacity. When that supply route is threatened, the market gets nervous.
During the past decade, the average geopolitical risk premium for oil has been around US$30 per barrel, according to data from Bloomberg analysts. In the early phase of the Russia-Ukraine war, the premium peaked at around US$40. Considering that crude surged from US$65 to US$100 in the past week, markets are clearly on edge in a way that they typically aren’t.
That rapid increase immediately raised concerns about inflation as well as corporate earnings, since higher energy costs can squeeze consumers and businesses.
So what happens next if the conflict drags on? Some governments could tap emergency strategic oil reserves to add supply to the market. But investors will also be watching for where high oil prices start to hurt demand.
Historically, analysts say you begin to see meaningful demand destruction when oil rises above about US$130 per barrel.
Trade Secret Tips
How investors can prepare for a prolonged war in the Middle East. In moments like these, it’s helpful to have perspective from veteran market-watchers such as Gordon Pape. He just published this helpful read on how to navigate the current market uncertainty.
How to defend your personal finances against the Iran war. Here’s personal finance columnist Rob Carrick’s action plan for your entire financial life during wartime, including ways to protect against risks tied to mortgages, stocks and RRIFs.
How do you win the Trade Off competition? As you get ready for the next season, pick up a few tips from the winners of The Globe’s inaugural stock-picking contest. Andrew Hebb, who won the $5,000 grand prize, said he picked stocks based on volatility – and a touch of luck.
That’s all for now. Make sure to sign up for our new season of Trade Off, which begins later this month!
Cheers,
Jon
Jon Erlichman is the founder of Ticker Take on YouTube and a contributor to BNN Bloomberg.