A rush for the exits. Oil got hit hard following through on the pre-holiday sell off as the focus seems to have changed from what is to what might be. Oil seems to have topped almost on seasonal cue nearly a year to the day from the time that oil hit its all time high. A weak stock market and fears we are headed for another depressing dip in economic growth spurred the move.
The oversupply of oil and what seems to be a seasonal shift is allowing the market to be less worried about global threats to supply. Nigeria is an area that is being ignored in an era of spare production capacity. Nigerian rebels claim to have destroyed a Chevron facility over the weekend as violence continues in that area.
Russia and the Ukraine might be back at it again as the “International Monetary Fund” told other international lenders and the European Union that it isn't willing to help finance Ukraine's purchases of Russian natural gas. If you remember it was the Ukraine crisis that sparked a bottom in oil to begin this year. The World Bank basically is saying that it is lending the Ukraine enough money and cannot pay its gas bills too.
Iran has gone to the back burner but it seems the election has weakened the Supreme Leader and perhaps has lowered the threat that Iran will be overly adventurous. The New York Times reports that, “An important group of religious leaders in Iran called the disputed presidential election and the new government illegitimate on Saturday", an act of defiance against the country’s supreme leader and the most public sign of a major split in the country’s clerical establishment. In other words, with Iran’s leadership in an upheaval it might not be the best time to ruffle feathers. The New York Times says, “A statement by the group, the Association of Researchers and Teachers of Qum, represents a significant, if so far symbolic, setback for the government and especially the authority of the supreme leader, Ayatollah Ali Khamenei, whose word is supposed to be final. The government has tried to paint the opposition and its top presidential candidate, Mir Hussein Moussavi, as criminals and traitors, a strategy that now becomes more difficult.” At the same time Iran's leadership is looking to take some of the heat off by releasing many of those they took into custody in the aftermath of the Iranian election protests. Iran has released journalists and British embassy workers. Iran is to release an eighth Iranian employee of the British embassy leaving just one remaining employee in custody. Iran also was to release Greek journalist Lason Athanasiadis who was working for the Washington Times, held on charges of stirring up protests. Perhaps the unrest in Iran makes the market feel that it is less of a threat than it has been in sometime.
Thanks for all the great response to the Independence Day Energy Report. I did make an error on the dollar. What I meant to say was that the dollar was weaker from the beginning of the year but not from last year. Last year, as oil hit its all time high, the “sub-prime” crisis was beginning to break. People thought the fall-out would be contained to the U.S. A year ago people ran away from the dollar on the false assumption that somehow the rest of the world had decoupled from the U.S. economy. Still the response was great and I appreciate it.
Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or pflynn@alaron.com .
