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Written By: Jonathan G. Browning | Oct. 7th, 2024
Chief Strategy Office | Hornet Corporation
$100 Oil: The October Surprise No One Wanted. Maximize Tax Benefits with Tax Deductible Oil Investments
The chaos unfolding in the Middle East has many on edge, but oddly, the oil markets remain surprisingly calm. While oil prices have risen slightly, the surge isn’t what you’d expect, even with fears of a wider conflict in the world’s most crucial region for energy.
This seemingly muted response in the oil market reflects a collective desensitization—investors have been through multiple geopolitical crises in recent years that amounted to little or no real disruptions. Now, it seems they are waiting for tangible supply shocks before pushing crude prices higher.
Yet, experts caution that the risk of a major price spike is very real. If the current turmoil escalates into full-scale war, the world economy—and perhaps even the outcome of the upcoming U.S. presidential election—could face significant upheaval.
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“This is likely to get worse before it gets better. The story of the boy who cried wolf didn’t end well—either for the village or the boy,” warns Bob McNally, president of Rapidan Energy Group. His words echo concerns that the oil market has grown dangerously complacent.
American consumers, in particular, dread price hikes at the pump. Gasoline prices have been steadily falling, with 18 states seeing averages dip below $3 a gallon. But all of that could change if conflicts in the Middle East disrupts the global supply chain. McNally adds that the region is nothing short of “the heart and circulation system of the global economy,” making any threat to oil production there a threat to global stability.
A Calm Before the Storm?
So far, oil prices have seen only modest increases despite Iran’s missile attacks on Israel and Israel’s subsequent promise to retaliate. Prices rose slightly earlier in the week, and even President Biden’s comments about Israel potentially targeting Iran’s oil reserves only pushed prices up by about 5%, settling around $73.50 per barrel.
In comparison to last year’s highs of nearly $90 per barrel, current prices remain relatively low, reflecting investor concerns about a potential oversupply, economic issues in China, and infighting within the OPEC+ alliance. A similar situation two decades ago would have likely seen prices shoot past $100, but the shale revolution has changed the dynamics of global energy markets. The U.S. is now a significant player in oil production, which has somewhat insulated the world from energy shocks that once would have been far more severe.
“Before the shale revolution, this kind of scenario would have driven oil prices well above $100,” explains Helima Croft, global head of commodity strategy at RBC Capital Markets.
Even as recently as 2022, when Russia invaded Ukraine, oil prices spiked to $130 a barrel. However, those initial fears of supply disruptions never fully materialized, and prices gradually fell back to more reasonable levels.
The Big Unknown: How Will Israel React?
The key question now is how Israel will respond to Iran—and whether that response will trigger a broader supply chain disruption. For now, U.S. officials are likely to work hard to prevent any significant energy impacts, but with tensions this high, nothing is guaranteed.
While it’s still too early to predict the long-term effects on energy markets, the world remains on edge.
Any significant disruptions in oil flow could send shockwaves across economies globally, making oil a central piece in a much larger geopolitical puzzle. The stakes have never been higher, and only time will tell if the markets' calm reaction holds or if a sudden surge in oil prices becomes the October surprise no one expected.
For more insights on this evolving situation, CNN’s analysis sheds light on how the market’s current response to the Middle East conflict might seem subdued, but the potential for a dramatic oil price spike still looms. Their article (read here) highlights key factors influencing the market’s hesitation, including past geopolitical scares that failed to materialize into supply disruptions, the rise of U.S. shale production, and ongoing concerns about economic trouble in China. As CNN explains, it’s a delicate balance that could quickly tip if tensions in the region escalate further.(CLICK HERE)
About The Author
Jonathan G. Browning
Chief Strategy Officer at Hornet Corporation, overseeing oil and gas exploration, development, and production. With over two decades of experience in business strategy and a deep knowledge of global energy markets, he is dedicated to increasing domestic oil production and securing sustainable energy solutions.
For a quarter of a century in the oil industry, our team at Hornet Corp has navigated the inherent fluctuations of a commodity-based market with unwavering stability. Our operational approach and robust structure have fortified our resilience, allowing us to withstand significant downturns such as the COVID-19 pandemic and the 2008-2009 financial crisis. While many companies retracted or shuttered during these challenging times, we, alongside our partners, remained steadfast, continuously investing in our shared objectives.
Our partners deeply value our commitment and trust in our dedication to every aspect of our business—from effectively producing wells and ensuring the prompt delivery of tax documents to the timely distribution of revenue checks and maintaining seamless communication throughout the entire process.
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Beyond our comprehensive involvement in each phase of oil well development, we've strategically invested to adeptly navigate the complexities of a commodity-based business. Hornet Corp owns both leasing and operating companies, demonstrating our commitment to integrated asset management. By owning our headquarters, field office, research and development office, and supply yard, we've established a robust infrastructure that supports our operations. These strategic assets, combined with our unique business model, empower us to efficiently raise capital, drill, and complete wells swiftly and cost-effectively, setting us apart in the industry.
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We design our programs to offer accredited partners significant ownership across multiple wells without requiring a hefty investment. By advocating for diversifying investments across several wells, we maximize potential returns for our partners. Additionally, our strategically chosen locations provide the unique opportunity to drill wells that can tap into multiple pay zones within various formations, significantly enhancing the chances of success. Our approach goes beyond targeting a single pay zone, aiming for multiple layers of potential within each well to ensure sustained profitability.
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