Tom Clancy, Traders.. Step Away from Iran
There is a great tradition of rhetorical debate that starts off with, “On the one hand … but then on the other hand.” It might as well be the oil market’s credo. The market that no one can live without on Tuesday – even four dollars higher than it was the last time they looked on Friday – can also be the market that looks overbought and overextended by Thursday. And, that is what it looks like we might have been putting in place this week.
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Iran & the Strait of Hormuz: Bad Bluff or Good Gamble?
Was Iran born to bluff, or is it really much closer to building a nuclear weapon than anyone really knows? Now that the Islamic Republic has made its intentions clear, one has to assume that it has given away a certain measure of strategic surprise. If it really wants to get the most that it could – militarily – from an attack on tankers moving through Hormuz, it should have never even raised it as a possibility. By discussing it, we figure Iran has given the US “notice” that it might not have had in the event of an attack from the blue. Weren’t the maneuvers in the Straits (by Iran) enough to raise the question without raising alert conditions from the West and from Israel?
Strange Recipe for Success
The last month has given us a blueprint for success in the oil complex … but it is one that is not likely to be seen over a full half of the year and it means “success” for most oil producers while it should hurt oil refiners.
The blueprint is for crude oil prices to rise while gasoline prices stay weak or fall. Pump prices are the key here. The full oil complex has developed a tendency to advance when we see stronger economic statistics, but those same statistics come under pressure when pump prices get near $4.00 a gallon. Recently, even with crude oil prices breaking the magical $100 a barrel level, gasoline prices at the pump have fallen to an average of $3.22 a gallon. Some of it could just be lagging numbers. But, some of it is also weak gasoline demand at a time when WTI is making a comeback against Brent. A good part of it may simply not be repeatable – like the comeback of WTI against Brent.
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Hormuz Will Be Tough to Close
Iran has made repeated threats to close the Strait of Hormuz if additional sanctions are enacted.
Everyone knows that closing the Strait is easy – “easier than drinking a glass of water,” according to Iranian Admiral Habibollah Sayari. But, can Iran keep it closed? That is doubtful. Before we get into why, let’s look at the petropolitics of it.
Don’t Mess with the Saudis Livelihood
The US and Saudi Arabia have vowed that they will keep the strait open. The Saudis added, for good measure, they would make up for any lost oil exports because of Teheran’s actions. Iran says that it does not need the Strait of Hormuz because it has the Sea of Oman (Arabian Sea) under its control, but strategically, Hormuz is still critical.
Point is, Saudi arabia can and will step up production in an Iranian created crisis.
Iranian Vice President Reza Rahimi said on Tuesday that “not a drop of oil will pass through the Strait of Hormuz” if additional sanctions are added. He added that the Strait “is completely under the control of … Iran.” And he noted that Iran’s navy has been constructed with the closure of the Strait in mind.
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Oil in 2012: Crisis Roulette
Peter Beutel will be a guest on Cavuto tonight, December 27th on Fox Business at 6:40 pm.
Societe Generale’s Mike Wittner said late last week , “The risk of a euro-zone explosion isn’t a little bearish; it’s a lot bearish. The risk of an escalation of the Iranian situation isn’t a little bullish; it’s a lot bullish.” For me that says a good deal about oil in both the year that is ending and the year ahead.
First, trading is quiet and uneventful, not that unusual for the end of any year. Prices are drifting higher right now on the vague feeling that things are getting better. We’ve had a couple of promising reports on housing, with numbers posted being the best in a few years. (Pay no attention that they are on the back of the worst in decades)
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