Oil spikes 4.5% After Top Iranian Commander Is Killed

OK, hi guys, it's Anthony here, Amplify Trading, on the floor in London. I thought I would jump on. We're not officially due to come back and deliver any of these briefings until Monday the 6th of January. However, there has been a significant fundamental development in markets which is influencing multi-asset class at the moment, particularly the price of crude oil. On the headline that you can see to the side of me at the moment, which is a top Iranian commander has been killed in a US airstrike on US President Donald Trump's orders. Now, what this has led to, if I just transition over to my screens here, is an immediate bid in WTI crude oil. That's the biggest chart in which you can see we've had a big spike in prices overnight where we've rallied from around a $61 mark all the way up to just shy of $64. So a sharp increase in prices overnight. We've held on to that into the European open this morning, so we're trading up in excess of $2 at the moment in WTI crude. But that risk atmosphere playing out in the other asset classes— equity index futures lower, the DAX down about 200, the Dow already down about 300 ahead of the US entrance. Fixed income futures bid. And gold seeing another move to the upside. I mean, just having a look quickly on gold here at the moment, you can see we're coming up to a really important technical level of long-term significance, that being the high we printed in the summer of last year in 2019. We're only a few dollars short of that in the futures. That would put us back to levels not seen since April of 2013. So really big day for gold potentially, as well as WTI crude when the US come into market later today. So a quick look then at this headline. What does it mean? What exactly has happened? I'll try and give you a bit of a summary, uh, of this and a view of what to look out for next, because it could potentially be a very interesting day later, dependent on the response that we see, particularly from Iran, and the significance that it could have with unrest within the Persian Gulf. Now, what has happened? Well, the US have killed General Qasem Soleimani, leader of the Iranian Revolutionary Guard's foreign wing, on a strike in Iraq. A statement issued late last night, US Department of Defense confirmed the killing by the US military in response to the commander's role in attacks on American diplomats and service members in Iraq. And throughout the region, including his approval of an attack on the US Embassy in Baghdad this week. So, looking to take action, uh, and that event unfolding in the overnight session. Analysts believe that Iran, without the hope of sanctions relief, will likely continue to goad the US with more attacks, including attacks on oil infrastructure. Now you'll remember this is particularly important because of the way oil prices reacted back in September of last year. So before I look at the, the oil kind of infrastructure of Saudi Arabia, let me just remind you of the price activity here. If we move to a daily continuation chart on WTI crude, you can see here this is where we trade at the moment, $63.38. So this is the news that's developed overnight and the pop in prices that we've had. But look exactly where we are now technically. We're right at a retest of that top that we printed in mid-September when that reported Iranian drone struck Saudi Aramco's infrastructure, knocking nearly 50% of the total output of one of the world's largest oil producers offline. That at the time, from the closing price of where we had on the 12th to the reopening of electronic trade on the day of the 16th of September, that overall session change was about 50 16%, one of the biggest moves ever seen in a one-time price move in a reopening of trade. But if you look where we are then, really significant at these levels because above this we'd have to go all the way back to really April of 2019 when we were trading up at around 66. So why was that so important? Well, this is the, the kind of graphic you'll remember me using at the time a few months ago. And the reason why I'm bringing this up is what, as traders now looking at the crude market, you need to be looking for is what if Iran retaliates? Could be the targets. What are the specific kind of key areas of the oil and gas infrastructure in Saudi Arabia that would carry increased sensitivity for its impact on production in Saudi? Because this is how Iran will retaliate. Iran's not going to retaliate so much as in directly at the US. It's an indirect move against Saudi Arabia, given their historical relationship and also the alliance that the Saudis have with the Americans. So here then, there's 3 key areas I want to, to bring to your attention that you need to be looking at both in today's session and the coming days and weeks. The first one here is the Red Sea port, which is refineries based in a place called Yanbu, which is here on the left-hand side towards the north part of the Red Sea, which would be then the kind of transportation hub for traffic moving from south to north through then servicing the Mediterranean. So this is this area here on the left-hand side, as you can see, a cluster of the main refiners. Here you've got Yanbu, Samref, Razef, and so on, all leading into then the two main ports here to service that area. So that's area number one. Area number two then is over here, the Safaniya oil field. Now this area here is right in the hotspot of where the main deposits of crude oil reside within the Persian Gulf. This, if you think about it, around every side of this area is Saudi Arabia, Iraq, Kuwait, and Iran, four of the largest oil-producing nations on the planet. And so this is a real key area of activity for the supply of crude oil. So that's the second one. Then you've got the world's largest offshore oil field and stabilization towers. This is in the Khorass oil field, which is right here. And this is the one of which those reported Iranian drones struck in September. That caused that massive pop in crude oil prices. So there's 3 areas here. You've got Yanbu in the oil terminal in the Red Sea. You've also got Safiyyah, which is the, uh, the oil field in the Persian Gulf. And then you've got slightly inland to the center-east part of Saudi Arabia, Khorass, which is the main and the largest of the offshore oil field and stabilization towers that Saudi Arabia has, and if retargeted, would have an immediate impact to a sizable degree of the amount of oil of which Saudi Arabia can produce. So if I was a crude trader, uh, what I'd be looking at is I'd have all of those names written down. And if you hear any news break on the Squawk Box or the text headline feed relating to those areas, it could have a meaningful and immediate impact on the price of crude oil. Now, just going back then, a quick look at a few other charts. Well, let's say we break through and let's say there isn't a development. And why are we talking about retaliations? Well, let me just quickly cycle you through what some of the top elite of Iran have been saying in response to this development. For one, the Supreme Leader of Iran has said, vows severe retaliation for the killing. You've then got the President Rouhani of Iran saying that the great nation of Iran will take revenge for this heinous crime. Then you've got the Foreign Minister of Iran: The US act of international terrorism targeting and assassinating Soleimani, the most effective force dashing Daesh, and so on, is extremely dangerous and a foolish escalation. The US bears responsibility for all consequences of of its rogue adventurism. So again, this is why the markets have got this risk-on response to this information. It's about an immediate escalation of tensions within the Middle East. What's Donald Trump got to say about it? Well, you'll notice one consistent pattern here: all the world's modern-day 2020 diplomacy, of course, done by Twitter. What's Trump said overnight? He said nothing other than he tweeted a picture of the American flag. Um, so again, obviously the context here, it's an election year we are now in, uh, and nothing speaks more to, to resonate with a lot of the electorate base, um, than being kind of strong and assertive within the Middle East in order to appeal to the, the kind of public, uh, of that disposition. So yeah, these are the key things to look out for. Quick look at the charts just to wrap up then. If we did break above these key levels of the September test we're seeing at the moment, I'd be keeping an eye then. This is looking at a daily continuation. I'm looking at here, uh, effectively the last 2 years really of price action. You can see the overall prevailing high that came in October of 2018 before we had that big, you remember, global kind of stock market rout on the escalation of trade wars the Fed tightening, global slowdown. That was when that Saudi journalist, of course, was killed. That was that high that we printed up at around 76.90. That's a long way off from where we are at the moment, probably looking at about a 15 to 18% plus move to the upside to get up to that point from the current level. However, as you can see here, you've got this area of the April 19th highs. Now let's just get a currency indicator so I can see the percent change from where we are at the moment to get up to that level, that, uh, high print in April of last year. That's about a 5.25% move. And a retaliation enough of hitting one of those key infrastructure parts of Saudi Arabia, definitely we can see a retest up and around those levels. So by those levels, I am talking this kind of area here as marked by the X. Depending on what gets hit, well then look, $70 isn't even out of the question mark. We saw how much the market did move, 15% in September. Could it do the same again? Sure it could, if they could get something underway and have as much damage as they did on that prior occasion to really impede Saudi production, given Saudi, what, the third largest producer of oil on the planet. So again, Key things to look out for here, um, I still remain fairly bullish here on price. I guess the key question is on the intraday technically we've got to get ourselves— we got to see a decent break of the September high then to act potentially as a bit of a platform. Do we get the next couple of days with the heightened geopolitical risk a break above, a pullback to the level, and then the prevailing move that comes up to then target here? Yeah, in that kind of fashion. Elsewhere, gold obviously bid on the back of this kind of flight to quality move with the risk-off in markets. Gold up $21 already this morning. And looking on a daily chart, that's also got a key level coming up in close proximity. You can see here the September 19th high, it's only about $10 in the futures away from the current price at the moment. Any break above that— well, look, this is a weekly chart Now in gold, we've got to go all the way back. If we break that previous high that we had in September '19, then we'd be printing the highest levels since April of 2013. Quite unbelievable how much gold has risen over the course of the last several months. Obviously, as the world's turned to central bank easing, it's been the predominant factor here, but renewed geopolitical risk coming on the table with a technical breach. What I'd probably want to be seeing here, if we're going to get a test, say, in the intraday, is a bit more weight coming into US equities. Probably got to wait until US participants come into market to see that unfold. Anyhow, that is it. As I said, we'll be back on the desk delivering our normal market briefings as of Monday, but I thought it warranted me jumping on and just saying a few words for this meaningful update we've had in markets. And, and a decent response in reaction. So good luck out there, and I'll catch you guys on Monday. Thanks very much.