Iran Back Down?
Oil is down overnight in part because it is possible that Iran is backing down on their nuclear ambitions. The AFP is reporting that Iran says they are ready to buy fuel for a nuclear reactor or swap its own stockpile of low-enriched uranium for the fuel but on its own territory. This is what has been proposed by Russia and others as an alternative to sanctions and a conflict. Whether or not this letter will appease the rest of the UN, Iranian critics or whether this is another stalling tactic remains to be seen but the oil market broke on this news.
Oil traders have been on guard pricing in the possibility of a showdown with Iran every since the IAEA said that it appeared that Iran was in pursuit of a nuclear warhead. That revelation by the UN body made it virtually impossible for even Iran’s advocates to defend them after they repeatedly lied to the world community. Of course after yesterday's lackluster session oil was looking for an excuse to break.
Yesterday, after a trading session that lacked fire and passion, oil managed to close above $80 in what seemed to be an almost indifferent rally. The marketplace seemed determined to expire the March contract above $80 a barrel but there really did not seem to be a reason why. Some pointed to the rally in gasoline that was in part the refinery strikes in France. Reuter’s News says that French motorists rushed to the pumps on the sixth day of a Total refinery workers' strike, which a union official said will close over half of France's oil refining capacity. Now the air traffic controllers in France are on strike. The way things are going pretty soon the whole country could be on strike. Better get to the liquor store and start hoarding Champagne just in case.
Others pointed to a report from the China Petroleum & Chemical Industry Association which said that China processed 29% more crude oil in January than they did last year according to the report refined 30.14 million metric tons (228 million barrels) last month while oil-product output increased 24% to 18.59 million tons. Still year over year comparisons, a year removed from the great economic meltdown is not exactly the type of thing that gets our sustainable bullish juices flowing.
If Iran cools off and the weather heats up it is going to be harder and harder for the bulls to maintain this momentum. We said that oil would test near $80 and fail. Now the pressure is on the bulls to repeat the close above $80.
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.