Market Report: Geopolitics Keep Crude Hanging by a Thread
Oil prices have been under pressure from weak demand, a strong dollar and ample supplies, but today geopolitics will keep the market from getting totally crushed. Militants in Nigeria are back at it and have ended a cease fire and rising tensions in the Persian Gulf could keep oil from totally falling out of bed. Still with a glut of oil and plenty of spare production capacity, this market is hanging by a thin thread.
Dow Jones reports that overnight Nymex crude went up slightly after Nigeria's MEND says militants sabotaged Shell pipeline but notes it wasn't directly responsible. Shell earlier said sabotage of a pipeline had shut down three flow stations in Niger Delta, after militants Saturday threatened "all-out onslaught" on local oil industry.
And if Nigeria is not enough, what about new tensions with Iran? The Guardian out of the UK is reporting that, "Tension between the US and Iran heightened dramatically today with the disclosure that Barak Obama is deploying a missile shield to protect American allies in the Gulf from attack by Tehran. The US is dispatching Patriot defensive missiles to four countries: Qatar, United Arab Emirates, Bahrain and Kuwait and keeping two ships in the Gulf capable of shooting down Iranian missiles. Washington is also helping Saudi Arabia develop a force to protect its oil installations. American officials said the move is aimed at deterring an attack by Iran and reassuring Gulf States fearful that Tehran might react to sanctions by striking at US allies in the region. Washington is also seeking to discourage Israel from striking Iran by demonstrating that the US is prepared to contain any threat. There was also a report that Iranian President Ahamadineajad is making a threat saying, "Iran will deliver a telling blow to global powers on Feb. 11." An early Valentine present perhaps?
Oil failed to take out the key $72.00 support area so we could see a bit of a rebound. Long term players, we are keeping our longer term bearish outlook. We have been saying for sometime that oil is headed down to the $40 handle and long term players should target that area. Last month oil had the biggest peak to valley drop since December of 2008, which obviously fits in with our bearish outlook.