Is $80 per barrel just too high? Oil prices are settling back again as more and more market participants wonder if $80 a barrel is sustainable. Last week OPEC said that an increase in oil production may depend on whether prices remain at the $75 to $80 per barrel area, stock piles return to the five-year average and floating inventories disappear.
Gas prices in the United States are increasing and are raising fears that they could put a damper on holiday spending. The Lundberg survey reported that gas prices increased by 17.82¢ in the past two weeks, an increase that is not normal for this time of year. The increase was driven not so much by demand but by declining gas production and a weakening dollar. Things are out of whack as refiners have scaled back production to historic lows as their margins get squeezed. The weakness in the dollar has driven the price of oil far beyond the realities of what the normal supply and demand fundamentals would normally bear and they are responding by taking supply off the market.
On the geo-political front, Iran is still buying time over its nuclear program and we have yet another ceasefire declared in Nigeria. AFP and Reuters are reporting that, “United Nations nuclear inspectors are in Iran for a three-day visit to examine one of Iran’s controversial uranium enrichment sites. A four-member team from the International Atomic Energy Agency arrived in Iran early Sunday. Iran's semi-official Mehr news agency reports the team toured the nuclear facility near Qom later in the day, but there was no immediate confirmation from the IAEA.
Iran acknowledged in September that it had been building this enrichment plant. Iran's nuclear chief, Ali Akbar Salehi, says Iran is allowing UN inspectors to visit the facility to prove the country's "good will" and to reassure the world community of its "peaceful nuclear activities." Iran is still deliberating over an UN-backed proposal to allow Russia to enrich uranium for Iran to fuel a research reactor. The deal, agreed to by Russia, the United States and France, is designed to prevent Iran from enriching uranium to the point that it can be used for nuclear weapons.
The AFP reported that Nigeria's main armed group in the oil-rich Niger Delta declared on Sunday an indefinite ceasefire, "to encourage dialogue with the government" but the Abuja authorities rejected the fighters' mediation team. The Movement for the Emancipation of the Niger Delta (MEND) said it made its decision after the government "expressed its readiness to engage in serious and meaningful dialogue with every group or individual towards achieving a lasting peace in the Niger Delta." MEND's attacks on Nigeria's oil industry have helped play havoc with oil prices on the world market and slashed the nation's output by a third since 2006. Nigeria is the world's eighth-largest oil.
This is overshadowing the suicide bombing in Iraq that killed 136 people. The worst bombing in two years does not seem to be a concern to this oversupplied market at the moment.
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Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.